U.S. dollar to come under pressure in 2019
By Trend
The rebound in US dollar, seen in October is unlikely to continue in 2019, UK-based Capital Economics consulting company said in its report obtained by Trend.
"Although some of things that triggered a rebound in the US dollar in October are likely to continue to underpin the currency in 2019, we still think that it will weaken then as the Fed stops raising rates sooner than investors are anticipating in response to below-par economic growth,: said the report.
The company said that the US dollar often strengthens in times of turmoil. "It did so, for example, during the slumps in the S&P 500 that accompanied the last two US recessions."
Capital Economics expects global equity prices to fall further in 2019, as concerns about the US economy take a toll on the stock market there and prove to be contagious.
"We also suspect that worries about protectionism and Italy will grow, and that the price of oil will fall some more. Nonetheless, we envisage that these positives for the greenback will be more than offset by an unfavourable shift in monetary policy," said the report.
This reflects the company’s belief that interest rates will stop going up in the US itself sooner than investors are anticipating, as the economy there slows sharply.
"We typically don’t have a strongly non-consensus view of how interest rates will evolve outside the US, although we do forecast that they will go up considerably more quickly in the UK than is discounted in the market assuming that a hard Brexit is avoided," said Capital Economics.
The company believes that the US dollar will come under pressure next year, despite its strength in October.
"Our end-2019 forecasts for dollar/euro, dollar/sterling and yen/dollar are $1.20/€, $1.45/£ and ¥105/$, which compare to current levels of around $1.14/€, $1.29/£ and ¥113/$," said the report.
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