(Bloomberg) -- That hiss might just be the sound of the air coming out of the reflation trade.

With just days to go before President-elect Donald Trump officially assumes office, analysts from Morgan Stanley to Nomura are warning that bets on a return of inflation and a stronger U.S. dollar may have run their course. They're cautioning investors across asset classes to gird themselves for the reversal of positions that have helped push the greenback close to a 14-year high.

"I don't think it's as much of a certainty as most people perceive it to be, and certainly I don't think it's as much of a certainty as it seemed in, say, November or December," Ken Veksler, director of Accumen Management, said of the reflation trade in an interview with Bloomberg TV on Friday. Those chasing the president-elect's policy proposals into a stronger dollar are typical of markets trading with "consensus but not conviction," he said, and the extremity of that positioning risks a messy unwind.

The U.S. currency's dip on Tuesday, following Trump comments to the Wall Street Journal that the dollar is "too strong," is one reminder that the trade doesn't have to run one way.


Bank of America's newly-published survey of 215 global fund managers shows a surge in bets on a stronger dollar through early January. But the 2% dip in the U.S. currency since before the President-elect's Thursday press conference may be one sign of a wavering consensus, while a one-month low in 10-year Treasury yields may be another.

"Contrarians note that long U.S. dollar is the most crowded trade by a country mile," the survey's authors said.

Bilal Hafeez, the global head of foreign-exchange research at Nomura Holdings in London, said it's becoming clear that the policies Trump is keenest on are those that are bad for inflation. Markets are starting to shift their attention from growth-supportive tax policies toward the possibility of protectionist trade measures.

"If he himself does focus more on trade, in my view, that's negative for the dollar, so I think we won't see the reflation trade manifest itself," he said in a television interview last week. "Instead we'll see a reversal of those Trump reflation trades."

Hafeez is one of a growing number of people who project Japan or Europe will perform well in 2017, rather than the U.S., where the good news has been "largely priced in." They include Andrew Sheets, chief cross-asset strategist at Morgan Stanley, who said in an interview on Friday "the reflation trade is a non-U.S. trade for 2017."

Sheets sees the 10-year U.S. Treasury yield finishing 2017 at 2.5% — only a few basis points above present levels of 2.29%.

As Accumen's Veksler put it, "at the slight jitters or the slightest little something, they might come running for the exit."

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