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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Interest rate outlook: US GDP of 2.8% expected in 2018

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US: Neutral. We expect US rates to stay range-bound, caught between growing trade worries and above-trend US growth. Core inflation continues to be benign, and we expect it to peak in the next two months at around 2.4%. After this, we see softer rental and service costs driving it below 2%. Assuming no large trade-driven shocks, US growth is likely to remain above trend for the rest of the year. It should be supported by increased energy sector capital expenditures, strong job growth and strong consumption. We expect 2018 gross domestic product growth of around 2.8%, 1% above the long-term sustainable trend. The risk of tighter global financial conditions due to trade-related tensions and the possibility of further tariffs in the next few months may cause asset price volatility. Treasury prices may benefit if volatility picks up.

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Interest rate outlook: Strong US GDP growth, trade worries may keep rates range-bound in 2018

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US: Neutral. We expect US rates to stay range-bound due to growing trade worries and above-trend growth. Assuming no large trade-driven shocks, US growth is likely to remain supported by stronger energy sector capital expenditures, strong job growth and consumption. We expect 2018 gross domestic product (GDP) growth of around 2.8%, one percent above our estimate of the long-term sustainable trend. Core inflation continues to be benign, and we expect it to peak in the next two months at around 2.3%.

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Interest rate outlook: US inflation should peak this summer, resulting in one more 2018 hike and then a pause

Invesco Fixed Income shares its views on rates around the world

Rob WaldnerTime to read: 3 min

US:

Neutral. US growth remains strong, accelerating in the second quarter versus the first quarter’s lackluster 2.2% performance.1 We expect 2018 growth of around 2.8%, with strong contributions from capital expenditures and consumption. Core inflation continues to be benign, and we see it peaking in the next two months at around 2.2%. After that, softer rental and service costs should drive it back below 2%. In our view, the US Federal Reserve will hike one more time this year before pausing in response to declining inflation. Strong growth and lower-than-expected inflation point to a 10-year Treasury yield of around 3%. However, supply dynamics will likely begin to shift in the third quarter as the Treasury begins to issue more long-term debt. This may pressure the Treasury yield curve steeper.

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Fed raises rates for the second time this year

Summary of economic projections anticipates improved growth and a lower unemployment rate

James OngTime to read: 2 min

The Federal Reserve (Fed) hiked rates by 0.25% for the second time this year, lifting the range for the federal funds rate to 1.75% to 2.00%. The statement that accompanied the meeting reflected a strengthening of the economy. The Fed also increased the rate of interest on excess reserves by 0.20% with the intent of moving the effective federal funds rate closer to the middle of the band.

The Fed’s summary of economic projections (SEP) showed improvement in its forecast of growth and a lower expected unemployment rate. The most surprising change in the SEP was a

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