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Analysts at Westpac note that the US dollar (DXY) is only marginally below its 2018 high of 97.4 at 97.1 (-0.3%) and heading into 2019 underlying momentum in the US economy is unquestionably strong.

Key Quotes

“We look for US’ economic momentum to persist through 2019, and consequently anticipate US data will justify two further hikes by the FOMC in June and September. That will take the federal funds rate to the middle of the Committee’s defined ‘neutral’ band, and DXY to a peak of 98.6 at September 2019. As per market pricing however, risks to this interest rate view are skewed to the downside given global cross-currents; the potential for US fiscal concerns to flair again; and the FOMC’s current cautious approach to policy.”

“That said, with near-term risks for other nations more pressing than for the US, downside to the US dollar profile to end-2019 seems limited. Come 2020 however, a clear downtrend in DXY to near 92 is forecast, as global risks subside; the FOMC is confirmed on hold at 2.875%; and interest rate hikes come back on to the agenda in Europe.”