The US dollar ended 2017 in the red, posting an annual slide of around 10%. The passage of the US tax plan into law was not able to help the currency in the last month of the year. Can a more hawkish Fed throughout 2018 change the sentiment towards the greenback?
The dollar kept falling on the last day of the year, posting its largest annual tumble since 2003. The dollar index, which tracks the greenback’s performance against six other major currencies, fell around 10% in 2017. On Friday, among its G10 peers, the biggest winners were SEK, NOK and EUR in that order, while the only currency against which the greenback held steady was JPY.
Although President Trump’s tax-reform plan is seen by many as boosting the US GDP growth in the foreseeable future, its passage into a law was not able to help the dollar. The plan could still prove beneficial for the currency though. Companies may be encouraged to repatriate funds from overseas, while GDP growth could get a boost of around 0.4 percentage points in 2018, according to the latest forecasts of FOMC policymakers who have been taking into account the impact of the tax cuts. This could lead the Committee to hike rates faster than the market is now pricing in.
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