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FUNDAMENTAL ANALYSIS


FX


Ditching the U.S. Dollar emerges as a popular call for 2019


Strategists in the $5.1 trillion-a-day currency market are gearing up for a slumping dollar next year, while pinning their hopes for 2019 gains on the yen.


A major driver of the dollar’s decline could be a downturn in the U.S. economy, especially in the second half of the year, JPMorgan Asset Management predicted. Others expect the Federal Reserve to slow down interest-rate increases, which they see as bearish for the greenback. Rising


market volatility and capital demand abroad will also spur an outflow of funds from the U.S., according to Morgan Stanley strategists.


Whatever the reason, a popular view is for a dimmer dollar. Te greenback is 10 percent to 15 percent overvalued, according to Morgan Stanley. A Bloomberg survey of foreign-exchange forecasters shows losses are expected for the greenback against traditional haven currencies such as the yen and Swiss franc. Te median forecast for


the dollar-yen pair is that it will drop from its current level near 113 yen to 108 yen by the end of 2019.


Of course, the dollar was also widely expected to lose in 2018, but the Bloomberg Dollar Spot Index rallied starting in April as the Fed continued with gradual rate hikes, the American economy outperformed the rest of the world and trade tensions ramped up between the U.S. and China. Te index has risen about 4.1 percent this year.


FX TRADER MAGAZINE January - March 2019 25


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