US dollar set to be bearish next year

LONDON: A hawkish Federal Reserve, an economy firing on all cylinders, the tentative revival of the “Trump Trade” –- all that won’t be enough to boost the dollar next year, according to a chorus of Wall Street strategists.

The dollar is heading for its worst year in more than a decade, and bearish projections are still piling up. Analysts say the steady unravelling of the greenback’s post-crisis bull run will be confirmed next year as global growth gathers pace and central banks converge on a more hawkish tone.

“Beware of sleeping volcanoes and seriously undervalued currencies,” Kit Juckes, global fixed-income strategist at Societe Generale SA, wrote in a report on Tuesday. With global “growth becoming more balanced and more synchronized, the dollar looks expensive.”

Traditional valuation models are set to stage a tentative recovery as central banks become more tolerant of currency appreciation, while yields in overseas markets rise, according to analysts.

“We think 2017 was a watershed year for the dollar,” said Ned Rumpeltin, currency strategist at TD Securities Inc. “As long as global growth maintains a steady pace, reflationary tailwinds persist, and US inflation does not unexpectedly – and uniquely – surge, the global macro landscape should favour a steady depreciation of the dollar.”

While the first half of next year may deliver more of the same, the dollar will likely be under even more pressure in the second half of next year as interest-rate markets price in less monetary stimulus from the European Central Bank, analysts said. — Bloomberg