US dollar may weaken due to renewed global growth convergence

Invesco Fixed Income shares its views on currencies around the world

Time to read: 2 min

US dollar: Underweight.

We continue to expect the US dollar to weaken against a backdrop of renewed global growth convergence. This will likely be driven by the unwind of the US exceptionalism theme of 2018 and the pivot toward a more dovish Federal Reserve policy going forward. Additionally, US budget and current account deficit concerns will likely persist and could be negative for US dollar performance.

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Currency Outlook: US dollar expected to weaken as exceptionalism theme unwinds

Invesco Fixed Income shares its views on currencies around the world

Time to read: 3 min

US dollar: Underweight.

We expect the US dollar to weaken in the near term. Renewed global growth convergence will likely cause the unwinding of the US exceptionalism theme that drove the dollar higher in 2018. We are encouraged by the price action so far this year and believe it is appropriate to re-establish an underweight in the dollar in the first quarter of 2019. US growth should remain solid in 2019, but moderate toward a mid-to-low 2% level as the Fed reaches the end of its tightening cycle. In Europe and China, we expect growth to stabilize above potential in 2019, which could cause investors to shift some assets from the US to other regions, potentially weighing on the dollar. Budget and current account deficit concerns could be additional headwinds for the dollar.

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Currency outlook: US dollar likely in a holding pattern through year-end

Invesco Fixed Income shares its views on currencies around the world

Time to read: 3 min

US dollar: Neutral.

The dollar remains caught between moderating US fundamentals and global growth divergence. As the US approaches the end of its tightening cycle and the rest of the world catches up, we will likely see investors leave the US for investment opportunities elsewhere. Taken alone, this would lead to a weaker US dollar. However, stronger domestic growth relative to the rest of the world has provided support for the US dollar, giving investors little incentive to leave. This has left the US dollar in a holding pattern which could persist through year-end. Longer term, we expect moderating growth, an increasing budget deficit and a widening current account deficit to eventually drive the US dollar lower.

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Currency outlook: China may intervene if renminbi/US dollar exchange rate reaches 7.0

Invesco Fixed Income shares its views on currencies around the world

Time to read: 3 min

US dollar: Neutral.

We believe the dollar is caught between two macro trends. On the one hand, US growth has positively diverged from the rest of the world, leading to increased interest rate differentials. Higher growth and larger interest rate differentials are typically positive for the US dollar. On the other hand, the US is running large budget and current account deficits. We believe these dueling factors will keep the US dollar in a holding pattern in the near term, but we expect the budget and current account imbalances to eventually drive it lower.

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Currency outlook: Convergence of global economic forces may cause weakening of US dollar

Invesco Fixed Income shares its views on currencies around the world

Time to read: 2 min

US dollar: Neutral. In our view, the US dollar remains trapped between two trends. Interest rate hikes (and ongoing balance sheet reduction) by the US Federal Reserve have increased US dollar funding costs and tightened financial conditions, further fueling the US dollar rally. However, while global growth has been strong, it does appear that US economic activity has peaked. This convergence typically causes the US dollar to weaken. If the trade environment stabilizes, this may benefit other currencies versus the US dollar in the near term.

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