Dollar’s unrivaled surge to reverse

Source:Reuters Published: 2018/12/7 12:08:40

Weakness expected to come in H2 of 2019

The dollar, which has enjoyed an unrivaled surge against its peers this year, will be undermined in 2019 on increasing concerns about slowing US economic growth, a Reuters poll  showed.

While the greenback is all set to end 2018 with gains against major currencies after a dismal performance in 2017, the dollar has been under pressure since Federal Reserve Chairman Jerome Powell said last week US interest rates were nearing neutral levels.

In the latest Reuters poll of more than 60 currency analysts, taken from November 28-December 5, the dollar was forecast to be weaker against major currencies in a year, leaving the euro at $1.20, up over 6 percent from around $1.13 on Wednesday.

"FX trends this year have been all about the market making a series of upward revisions to US growth forecasts for 2018-2020, in absolute terms and relative to its main trading partners," noted Kit Juckes, global head of FX strategy at Societe Generale.

"The story of 2019 is likely to be a reverse of those upward forecasts, in absolute terms first and relative ones somewhat later. If the initial move is for all growth forecasts to come down, dollar weakness may well be concentrated in the second half of 2019."

The greenback may also struggle to move much higher, given that currency speculators' bets in favor of the dollar are the highest since December 2016, according to Commodity Futures Trading Commission data.

A flattening of the US Treasury yield curve - a phenomenon in which longer-dated yields fall faster than their shorter-dated counterparts - to just about 13 basis points, its narrowest in over a decade, has fanned fears of a recession in the world's biggest economy.

An inversion of two-year and 10-year yields, when 10-year bonds yield less than their two-year debt, has preceded almost every US recession in the past 50 years.

Global equities and the dollar have also been hurt by expectations the Fed may be closer to the end of its three-year rate-hike cycle, something economists said was a risk in a separate Reuters poll.

Posted in: MARKETS

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