Druckenmiller takes aim at dollar in sole conviction trade

Billionaire investor Stanley Druckenmiller is betting against the US dollar as his only high-conviction trade in what he believes is the most uncertain environment for markets and the global economy in his 45-year career.

Druckenmiller, who as George Soros’s right-hand man helped break the Bank of England in an assault on the pound in 1992, said he felt confident taking a negative position against the greenback because of his dim view of US policymaking.

The US dollar, which rallied strongly last year, has already declined by 10 per cent against a basket of other leading currencies since a November peak, but Druckenmiller believes it has much further to fall.

“One area I’m comfortable is I’m short the US dollar,” he said at an event hosted by the Norwegian sovereign wealth fund in Oslo on Tuesday. “Currency trends tend to run for two or three years. We have had a long [run] higher.”

Druckenmiller racked up one of the hedge fund industry’s strongest winning streaks with legendary trader Soros and then at Duquesne Capital Management, before ejecting investors from the $12bn hedge fund in 2010 and turning it into a family office to manage his own fortune.

He said he had missed the 2022 dollar rally “because I could not bring myself to buy Joe Biden and Jay Powell . . . It was probably the biggest miss of my career”. But Druckenmiller said he suspects US policymakers would respond to an economic downturn with a fresh wave of interest rate cuts — typically a move that drags down a currency.

“The Fed has shown some mettle over the last year but historically I would not say [Federal Reserve chair] Jay Powell is a profile in courage,” the 69-year-old billionaire said in conversation by video link with the Norwegian oil fund chief Nicolai Tangen.

In addition, Druckenmiller said the dollar had been “weaponised” over the past year — a reference to the freezing of Russia’s dollar reserves after the full-scale invasion of Ukraine in February 2022. “And you have [Brazilian president] Lula running around asking why we have to do trade in the US dollar, and he’s right to,” he added.

Druckenmiller also said he had been a little “unnerved” by the Fed’s response to the failure of Silicon Valley Bank in March, particularly because of the speed at which the US central bank responded by expanding its balance sheet, unwinding a large part of the balance sheet reduction it had conducted over the previous few months.

Druckenmiller also reiterated his view that big asset classes like equities were likely to show little if any positive direction over the next 10 years. “I think we will have a lot of swings.” However, the investor expected a US recession and is shying away from “old economy” small and midsized companies. “I’m in the ‘hard landing’ camp,” he told the conference.

The US dollar went on a tear higher in 2022 when the Fed jacked up interest rates aggressively to contain inflation, with an index that measures the currency’s strength against a basket of its biggest counterparties climbing 8 per cent.

However, growing investor fears that the US economy is heading towards a recession and that the US central bank is about to halt its rate increases — and might even be forced to begin to cut by the end of the year — have sent the dollar index down by nearly 10 per cent since its November peak.