USD: On the wane? - Rabobank

Jane Foley, Senior FX Strategist at Rabobank, points out that on a 1 day view the USD is the worst performing G10 currency and over the past 5 days, the USD has fared second worst after the beleaguered pound. 

Key Quotes

“In recent days the outlook for the greenback has been undermined by concerns that the market may have become too optimistic regarding the outlook for US growth and rates.  While this may be true, risks to the outlook for both risky assets and the EUR suggest that the USD may still remain relatively well supported through 2019 and potentially beyond.”

“A fresh poll released by Reuters is suggesting that economists are now attributing a 35% chance of a US recession over the next two years, up from 30% in the previous survey.”

“Slowing US growth, a plateauing of Fed interest rates and the likelihood that investors will be paying more attention to the surging US budget deficit all suggest that the environment for the USD is likely to sour next year. However, a backdrop of slower world growth and US/Sino trade wars suggests that pressure on EM assets will remain.”

“In addition, slower growth in the Eurozone combined with political risk in the form of populist pressures all suggest that investors are likely to maintain long USD positions, though in this environment the JPY and the CHF could outperform.”

“Although there will be some exceptions, the downside risks to growth from trade wars is likely to keep risky assets under pressure and this is likely to ensure some support for the USD.”

“On balance we see only limited scope for the EUR to recover ground vs. the USD next year.  We continue to see scope for a move towards EUR/USD1.12 in H1 2019 followed by a slow creep back towards 1.14 on a 12 mth view.”