Dollar has fallen a little over 3% from its October highs. Economists at ING analyze Greenback’s outlook for the next year.
Dollar to turn lower
We think the Dollar should be due to a cyclical downturn next year.
Barring huge and unexpected risk premia emerging in the currency space, the dominant trend should be US growth converging on the weak levels seen in Europe and Asia, the Federal Reserve embarking on an easing cycle, and the Dollar falling 5-10%. That view does hinge on the Fed being able to cut rates and a clean bullish steepening trend playing out in the US yield curve.
The main threats to our Dollar view are enduring US economic strength or another identity crisis in the Eurozone – recall EUR/USD failed to rally in 2001, despite the Fed cutting nearly 500 bps.
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