Currency outlook: US dollar may be caught between two opposing trends

Invesco Fixed Income shares its views on currencies around the world

Time to read: 3 min

US dollar: Neutral. We believe the US dollar is caught between two trends. Interest rate hikes and balance sheet reduction by the US Federal Reserve (Fed) have increased US dollar funding costs and tightened financial conditions, spurring the dollar rally. Uncertainty over trade policy has exacerbated the move. On the other hand, global growth has been strong and it appears that US economic activity, while buoyant, has peaked — a convergence that typically causes the US dollar to weaken.

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Currency outlook: We expect US dollar appreciation due to trade tensions

Invesco Fixed Income shares its views on currencies around the world

Time to read: 3 min

US dollar

Neutral. Trade tensions have resulted in a partial change to our view. We have revised our expectation for a broad US dollar weakening trend, now believing it may appreciate versus currencies linked to China as trade tensions increase. At this point, it appears likely any increase in tariffs may adversely affect valuations of Asian currencies (excluding Japan) such as the Chinese renminbi and Korean won.

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Currency outlook: US dollar volatility could become a concern as global central banks remove stimulus

Invesco Fixed Income shares its views on currencies around the world

Time to read: 2 min

US dollar:

Underweight. We expect the strong global growth environment to drive the US dollar weaker over the long term. Global monetary policy should converge as the US Federal Reserve (Fed) nears the end of its tightening cycle and other major central banks begin to normalize. As this occurs, volatility in the US dollar could become a concern, as the Fed is likely to remain consistent in its tightening path while other central banks navigate the early stages of removing monetary stimulus.

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Currency outlook: Anticipating US dollar weakness over the long term despite the recent rebound

Invesco Fixed Income shares its views on currencies around the world

Time to read: 3 min

US dollar:

Neutral. We expect dollar weakness over the long term as global monetary policy converges toward the current US path and the Fed grows cautious due to softening inflation. As such, it is likely that investors will look for better investment opportunities elsewhere, with the resulting flows out of the US weighing on the dollar. In this environment, we would consider shorting US dollars. In the near term, however, we have moved to neutral as global growth has waned slightly and US growth remains supported by fiscal stimulus.

Euro:

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Currency outlook: US dollar may be pressured as investors seek more promising growth opportunities elsewhere

Invesco Fixed Income shares its views on currencies around the world

Time to read: 3 min

US dollar:

Underweight. The US is in the later stage of its economic cycle relative to the rest of the world, in our view. We expect the Federal Reserve to grow cautious while other central banks continue tightening. The dollar should be pressured weaker as investors look for better growth and return opportunities elsewhere. However, the fundamental picture has been muddied recently, with growth data disappointing relative to expectations — resulting in a mixed performance for the US dollar. We believe this is a short-term correction in market expectations for both US and global growth. We are watching the data closely to be sure that constructive fundamentals are still intact and this is not the start of a downward trend.

Euro:

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