U.S. dollar softens, but benefits from relative economic strength


We believe the U.S. dollar will have a softer edge in 2019 due to fewer rate hikes and slower relative domestic GDP growth, but still has the relative strength of the U.S. economy as a tailwind.

U.S. Dollar outpaced many key currencies in 2018
Chart Showing U.S. Dollar outpaced many key currencies in 2018

Source: Bloomberg; change in value of selected currencies vs. U.S. dollar for the period 12/29/17–12/18/18.

With fewer rate hikes and slower global GDP growth, we expect the U.S. dollar to have a softer edge in 2019. This will manifest itself in a more balanced performance for the dollar against other currencies, but we think it still will be supported by the relative strength of the U.S. economy.

We think major developed-market central banks will follow the Fed’s lead on their own interest rates. The European Central Bank (ECB) has indicated that interest rates will remain at current levels into the second half of 2019. With the deposit rate currently at a negative 40 bps, we believe the ECB will begin raising rates in the third quarter, but don’t expect rates to approach zero until December 2019 or early 2020.

We believe the Bank of England will wait until there is a successful result to the Brexit negotiations before it raises interest rates, and we expect two rounds of rate hikes in 2019. Both a Brexit deal and higher rates would support the U.K. pound, which we believe is undervalued.


2019 Outlook — What’s ahead amid slowing growth

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