Currency outlook: Possible global central bank policy surprises could suppress US dollar

Invesco Fixed Income shares its views on currencies around the world

Time to read: 2 min

US dollar:

We expect the US dollar to weaken throughout 2018. We base our view on positive global growth and predicted changes in global monetary policy. While we believe US growth will maintain its strengthening trend, growth across the developed world (especially in Europe and Japan) is likely to be even stronger. Global central banks, especially the European Central Bank (ECB) and the Bank of Japan (BOJ), are likely to tighten policy in response. We believe market expectations of policy tightening are currently much lower for the ECB and the BOJ compared to the Federal Reserve, which means there is more room for a market surprise that could cause their currencies to rise against the US dollar. In addition, strong global growth environments have historically led to a weaker US dollar, as US investors seek higher risk premia abroad and non-US investors stay home. We do not believe corporate repatriation flows will be a large driver of US dollar price action. Foreign profits are already largely held in dollar-denominated assets, and repatriation is likely to occur over many years.

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Currency outlook: Anticipating a weaker US dollar over the longer term

Invesco Fixed Income shares its views on currencies around the world

Time to read: 3 min

US dollar:

The US dollar has strengthened in recent months on expectations of a December rate hike by the Federal Reserve (Fed). We do not expect strengthening to be the longer-term trend, however. Strong global growth, resulting in less accommodative global central bank policies against a backdrop of gradual Fed policy normalization, is likely to drive the US dollar weaker over the longer term.

Renminbi:

We expect the USD/RMB exchange rate to trade

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Currency outlook: Global policy convergence story continues as central banks react to strong growth

Invesco Fixed Income shares its views on currencies around the world

Time to read: 2 min

US dollar:

We expect our global policy convergence story to continue playing out as central banks react to strong global growth. The US Federal Reserve (Fed) continues to tighten, but at a pace gradual enough for the markets to absorb. We do not expect inflation to force the Fed into a more aggressive stance. This backdrop means that foreign central banks will likely remain the main driver of the US dollar going forward, in our view. As global central banks remove stimulus, we expect the US dollar to depreciate over the longer term.

Renminbi:

We expect the USD/RMB exchange rate to trade in a range of

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Currency outlook: Global growth, policy convergence support longer-term US dollar weakness

Invesco Fixed Income shares its views on currencies around the world

Time to read: 2 min

US dollar:

We expect the US dollar to continue depreciating over the longer term. Our positive global growth view and outlook for global policy convergence toward the Federal Reserve’s (Fed) tighter stance will likely be a drag on the dollar against developed market currencies going forward. Capital flows into Europe, for example, have reinforced recent US dollar weakness. The Chinese yuan has also appreciated sharply against the dollar, pointing to the global nature of this trend.

Euro:

We maintain our forecast of

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Currency outlook: Global policy convergence will likely weigh on the US dollar

Invesco Fixed Income shares its views on currencies around the world

US dollar:

We expect the US dollar to continue to depreciate over the long term. Synchronized global growth and global policy convergence (toward the US Federal Reserve’s tighter stance) will likely weigh on the US dollar versus developed market currencies. However, short US dollar positioning currently appears stretched. If positions are unwound, this could lead to a dollar bounce in the near term.

Euro:

The euro is likely to continue appreciating, in our view. In addition

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