If you’re dancing at the dollar’s bull run party, stay close to the exit — because it’s almost over.

That was the take-home message from David Bloom, HSBC’s global head of FX strategy, during his visit to Bermuda to give a currency outlook presentation.

Does that mean the much speculated parity paring of the dollar and the euro is not going to happen? Well, it still could. Mr Bloom said there is scope for further strengthening of the dollar in the near-term, but he believes the currency’s stellar rise is all but done.

Evidence that the strong dollar is beginning to dent the US economic recovery, together with the prospect of a Federal Reserve interest rate rise by the end of the year, are factors that have swayed Mr Bloom’s view.

He said foreign exchange investors will need to shift their focus away from the dollar to other currencies.

And as for where pain might be felt as interest rates rise and yields go higher, he warned that some emerging markets, including the so-called “fragile five” of Brazil, South Africa, Indonesia, India and Turkey could be vulnerable.

“The dollar can still rally, but the big move, the meaty move, that’s done,” said Mr Bloom, referencing dynamic shifts that saw the dollar power from 1.42 to 1.05 against the euro and 1.70 to 1.45 against the British pound.

He was speaking at a presentation this week for clients of HSBC Bermuda.

Explaining his reasons for believing the dollar bull run is coming to an end, he described the first part of the currency’s rally as “beautiful” as people bought the currency through assets, credit and bonds. But then things changed.

“The rally got momentum, everybody got caught up and people started buying the dollar for the dollar’s sake.”

This has had consequences on equities, which have weakened because the translation of profits is less.

And the rising dollar causes US exports to slow and US growth to slow, effects Mr Bloom characterises as “the dark side of the dollar”.

The HSBC executive said new data on the US economy had played a part in changing his mind on the outlook for the dollar.

“What changed my mind was recent data developments. Tolerance for dollar strength hit its limits. It was coming to the point where it would harm the US economy.”

Fellow guest speaker, Ryan Wang, HSBC’s US economist, detailed some signs of sluggishness in the US economy revealed in first quarter data.

The energy sector has contracted and employment growth in manufacturing industries has stalled.

Mr Wang said: “Eight-five per cent of the US economy outside of these two sectors is doing well.”

He said a negative GDP figure in the first quarter had been affected by winter weather and some short-lived industrial action at West Coast ports, but he expected US growth to be in the range of 2.5 to 3 per cent in the second quarter.

Other data shows that the share of the US population employed has been declining and now is about 63 per cent, growth in wages remains subdued and the house building sector’s recovery remains slow.

Mr Wang said that with the global situation still weak, coupled with the strength of the dollar and no inflationary pressure in the US economy, he expects the first Fed rate rise to come in December.

He told The Royal Gazette: “US economic growth was disappointing in the early part of this year and economic growth has slowed, net exports were a significant part of that weakness in economic growth.

“The Fed is going to be cautious. It is noteworthy that they have said the strength of the dollar has had an impact on exports.”

A weakening of the dollar is the likely scenario once interest rates rise, according to Mr Bloom.

“Once the Fed pulls the trigger the dollar never performs well; it always performs well into a tightening, but not necessarily when we get to the tightening,” he said.

While not ruling out some further strengthening of the dollar, he said a big upswing could prove to be problematic.

“A dollar rally from here of 10 or 15 per cent is very destructive on global assets. The world wants a weaker currency, but not too weak,” he said.

However, rising bond yields have the potential to cause some discomfort for investors and present a risk to some countries.

On this point, Mr Bloom cast his eye towards a number of emerging markets, in particular Brazil, where the dollar had strengthened against the Brazilian real to 3.20 in March and continues to hover in the region of 3.10. A year ago it had been trading at 2.20.

“We have seen Brazil come under pressure. Brazil is a big worry for the world,” he said, noting a troublesome outcome for Mexico, a fellow regional emerging market, in 1994.

“The Fed raised rates roughly from 3 per cent to 6 per cent, the [yield] curve steepened and within 9 months Mexico was bust. So yes, we are worried.”

Rising US interest rates and the resulting rise in bond yields has historically been shown to cause a decline in capital flowing into emerging markets.

As a caveat to mentioning the potential risk some countries might face, Mr Bloom said: “We’re not saying that is the most likely scenario, but we are saying that is the most damaging scenario.”

For investors who trade foreign currency, the end of the dollar bull run will mean seeking out other currency opportunities — a case of “local beats global”.

Mr Bloom said: “When the dollar is rallying you don’t care what is happening in one country compared to another, you just buy the dollar.

“What we do now is look at local and what countries do we like? Which countries are outperforming? So relative currencies come back again. That’s when local beats global.

“You start looking at issues in other countries when the dollar has stabilised.”

After the double presentation by the visiting experts, Richard Moseley, CEO of HSBC Bermuda, said he was delighted by the high level of interest from the bank’s clients, who had filled the room to listen to Mr Wang and Mr Bloom.

“It shows what is going on out there and creates a buzz,” he said.