US dollar in for a tough year

12 January, 2018

The US dollar finished off 2017 mostly weaker against the major currencies despite 3 rate hikes from the US Federal Reserve and although 3 more rate rises are expected this year, some predict the greenback will be in for another disappointing 12 months.

On top of rate hikes, US tax reform, which includes slashing the corporate tax rate to 20 percent was passed by the US congress in December, and was predicted to lend support to the US dollar as companies repatriated their funds back to the mainland for tax savings.

Although there was much hype surrounding the benefits of tax reform there are many unknowns and some see problems down the track as the tax legislation takes hold.

"We still think the dollar is probably going to be relatively soggy, at least against the majors, probably against the emerging economies to a significant degree as well," Jan Hatzius, chief economist at Goldman Sachs, said.

Rumors out of Canada today claim that US President Donald Trump is planning to pull out of NAFTA - the (North American free trade agreement) which some predict will be disastrous for the US dollar.

Inflation will slow which is exactly what the Fed doesn’t want as it may interfere or even force them to cancel their planned rate hikes as prices for many goods rise as the US is forced to look elsewhere to import goods.

"The dollar will suffer against the euro but the market is not really having a clear view on this. The euro is actually down on these headlines. The market is actually so confused about what it means for the global dollar," said Jens Nordvig, CEO of Exante Data.


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