So far 2019 has shown encouraging signals for the greenback. Many analysts were predicting a correction of the continued strength that was seen for much of 2018. After scrutinising the performance and data we can see why the world’s reserve currency has climbed
GDP had averaged over 3% for 2018 showing growth which has rivalled its storming 3.14 % growth of 2004. The manufacturing sector has had seen its best growth in 25 years, consumption and consumer spending numbers looked strong through 2018, employment data derived via Non Farm Payrolls were consistent showing job creation figures to be buoyant. The Fed have expertly managed the long-term process of keeping inflation levels to the golden 2% benchmark whilst not negatively impacting the economy. After four rate hikes in 2018 and three the previous year it may seem that the Federal reserve is nearing the end of its premeditated tightening of monetary policy. With the current rate set at 2.5% by the FOMC there may not be too much room left for further adjustment this year. (The neutral rate, the rate at which a rate hike will not have a relative effect on the economy is estimated to be between the 2.5% and 3.25% range). Therefore, the likely hood of any intervention from the Fed for this year looks set to be minimal.
The hikes over 2018 by the FOMC certainly ensured that investors were rewarded by moving to sell other currencies and purchasing the USD due to the global downturn in growth and a lack of movement in rate adjustment from other key central banks. Now the Fed has little appetite to adjust rates unless if they are forced to do so via a knee jerk reaction to other key economic data.
The downturn in global growth within the eurozone and particularly the Chinese economy can play into the hands of a stable dollar as many investors are perceiving the greenback as a haven given the continued strong data. Donald Trump has had a strong hand to play. The Chinese economy has suffered with Trump’s ensuing trade war. The future of which is uncertain until March at the earliest, at which point, we may see some stabilisation on the global market if sanctions are lifted, or levies may increase on Chinese imports destined for the US if there is no agreement. In the case of the latter, this should play to the strength of the dollar.
It seems like we may be in for a stable dollar in the near term, with range bound trading the prognosis for many traders for the first quarter of 2019 but fundamental support combined with some of the points discussed amalgamated with political uncertainty caused by a no deal Brexit, (which will have a negative impact on both sides of the English channel), potentially points to a steadily appreciating greenback for the first part of the year.
For more information and guidance on what to trade and how-to trade be sure to visit our dedicated forums for our clients and stay tuned to all future news and information releases by Ice FX.