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By Bloomberg

The easy money made in 2014 from wagering on the dollar’s appreciation against the euro and yen is over, compelling traders to dig deeper for bargains as the greenback’s advance moderates.

After soaring 13 percent last year, the U.S. Dollar Index will only rise another 3.5 percent in 2015, according to more than a dozen strategists surveyed by Bloomberg. Bank of America Corp.’s top pick for this year in terms of risk-reward payoff is buying the U.S. currency against its Australian namesake, while Goldman Sachs Group Inc. says the dollar will gain versus a basket of South Africa’s rand and Hungary’s forint, as well as against the euro.

“Trading will be bumpier, with more zigs and zags,” Greg Anderson, Bank of Montreal’s global head of foreign-exchange strategy, said in a Dec. 30 interview in New York. The pace of the dollar’s surge, which came mainly in the second half of 2014, is “not sustainable,” he said.

The main driver of the dollar’s gains -- the likelihood that the Federal Reserve would start a steady stream of interest-rate increases this year -- is in doubt as global growth falters. John Williams, president of the Fed Bank of San Francisco and a voting member of the Federal Open Market Committee, fueled that speculation when he said yesterday he sees “no reason whatsoever to rush to tightening.”

Rally ‘Overdone’

Forecasters see the dollar climbing another 2 percent versus the euro and almost 5 percent against the yen by Dec. 31, compared with a 14 percent advance against each last year. The euro hit an almost nine-year low of $1.1864 on Monday, before trading at $1.1936 as of 8:14 a.m. in London, while the yen tumbled to a 7 1/2-year low of 121.85 per dollar last month, and was at 119.16 today.

“The dollar rally of 2014 is overdone,” Jonathan Lewis, a money manager at New York-based Samson Capital Advisors LLC, which has $7.4 billion in assets, said by phone on Jan. 2. “It’s not likely to continue at this rate with this level, with this magnitude of appreciation in 2015.”

Traders have pushed out bets on the timing of the Fed’s first rate increase to September, from predictions for July six months ago. Futures contracts show about 64 percent odds the central bank will raise the target for its benchmark to at least 0.5 percent by September.

The central bank will be “patient” in beginning to normalize monetary policy, the FOMC said in its statement last month after removing a pledge to keep rates near zero for a “considerable time.” Policy makers are unlikely to act for at least the next couple of meetings, Chair Janet Yellen said.

Yield Alternatives

While BNP Paribas SA’s top recommendation for 2015 is selling the euro versus the dollar, 10 of its 15 best picks don’t involve the U.S. currency at all.

Instead, the French bank is focusing on strategies involving higher-yielding, emerging-market currencies, such as buying Brazil’s real against South Africa’s rand and selling a basket of yen, euros and Australian dollars to purchase Mexico’s peso. BNP’s picks reflect its more constructive view of commodity-related currencies, analysts led by Steven Saywell wrote in a Dec. 9 note.

BNP continues to see profit in selling the 19-nation European currency versus the greenback, and is targeting a decline to $1.15.

Pace, Timing

Selling Australia’s dollar versus its U.S. counterpart is “the best risk-reward long U.S. trade” for 2015, Bank of America analysts led by David Woo wrote in a Nov. 23 report, and confirmed yesterday.

Goldman Sachs, which sees the euro weakening 3.7 percent to $1.15 in the next 12 months, is recommending the greenback against the rand and forint. These represent two types of emerging-market currency that the bank predicts will fall versus the dollar: those of economically imbalanced countries and those with low inflation, according to a note yesterday.

JPMorgan is advising clients to deploy a six-month “seagull,” which is a strategy that uses options to protect against undesired moves by an underlying asset, to bet on further dollar gains versus the euro and the yen.

While hedge funds and other large speculators are still bullish on the dollar, wagers on the dollar’s strength versus eight of its major peers have fallen from a record set early last month. The difference in the number of positions on gains versus those on declines -- net longs -- was 404,766 as of Dec. 30, down from 428,558 on Dec. 2.

“The dollar will continue to strengthen against the euro and the yen but, to me, the question is the pace and the timing -- it will not be a straight line,” Eric Stein, who oversees about $13 billion at Boston-based Eaton Vance Corp., said by phone Jan. 2. “It may be tougher as it gets to be more and more of a consensus view.”