US Dollar Trend in 2019; Bullish or Bearish

By: Taarek Refaat

WASHINGTON, DEC. 31 (SEE)- Despite a relatively pided opinion over the US dollar trend in 2019, forecasts to undermine the strength of the greenback, weighted more by a remarkable margin leading towards a bearish drift.

The dollar has witnessed considerable gains since the beginning of the year 2018, bringing the US dollar index to 96.581 by the end of December from 92.124 during the corresponding period last year, up by 4.83%.

The US dollar index follows the performance of the greenback against 6 other major currencies including the euro, Japanese yen, Canadian dollar, British pound, Swedish krona, and Swiss franc.

The greenback benefited from a trade war with the second largest economy China. Investors took the currency as a safe haven against the yuan.

Chairman of the U.S. Federal Reserve Jerome Powell followed a tightening monetary policy, raising the interest rates at 2.25-2.50 percent this year, in an attempt to reduce inflation and slow accelerating growth.

The currency also received a big relief after the easing of geopolitical tensions between the US President and the leader of North Korea in a historic summit that aimed at the denuclearization of the peninsula.

The George Washington featured bill achieved a remarkable surge against currencies such as the euro and the sterling, for issues related to the disagreement between the new Italian government and the European Commission on the budget plan, and the Brexit negotiations.

The majority of analysts expect an inevitable depreciation in the dollar's value in 2019.

Investment banking company Morgan Stanley (MS) suggests that the US currency has reached its peak and 2019 will witness a sell-off amid lower stock prices and lower Treasury bonds' yields.

According to MS, the US economic growth is expected to slow down next year recording 2.3 percent compared to 2.9 percent this year. The slow down will likely render into a decline in the value of the dollar, which is 10-15 percent overvalued.

"The dollar is overvalued against most currencies, and any currency gains contrary to the euro or yen are anticipated, in the next six months, to be marginal," investment bank "ING" reported.

Citigroup also confirms that the greenback will decline about 2 percent against the other 10 major currencies in the next 6-12 months. "If the US economic growth weakens to 2 percent, the downward trend of the currency is likely to continue for several years," Citigroup stated.

The US investment group predicts the dollar to slow down along with global economic growth. "The US dollar is expected to depreciate due to the hike in interest rates and competitiveness of other currencies," Citigroup said in a statement.

Meanwhile, JP Morgan noted that the greenback could show a downward trend, on the occasion that the Fed's halt its monetary tightening policy. JP also predicts weak economic growth in the US and the stabilization of other competing currencies.

Goldman Sachs foresees a bearish trend for the US currency over the next year as Gross Domestic Product (GDP) growth is expected to slow in line with the global average.

As of the year 2019 forecasts, the Fed may reach the interest rate adjustments' peak, restraining the increases of the US currency, and triggering a wave of the greenback selling by the third quarter.

According to a survey conducted by Bloomberg, the US currency is expected to depreciate against traditional safe-haven currencies such as the yen and the Swiss franc, with a drop from its current rate of 113 yen per dollar to 108 yen at the end of 2019.

However, some analysts predict a positive outlook for the value of the greenback next year, noting that demand would shift away from volatile currencies towards the dollar.

According to HSBC, The greenback is likely to increase in value reaching $ 1.10 against the euro with a 3 percent rise by the end of 2019.

HSBC analyst David Bloom expects the dollar and yen to be the winners in the coming period even if the Fed cuts interest rates.

In the same manner, Barclays analysts predict the dollar to appreciate by 2-3 percent in 2019, provided an increase in interest rates in the first half of the year.

The outlook for a possible depreciation in the value of the dollar coincides with several factors around the world, including a reduction in GDP growth estimates for 2019.

According to the Organization for Economic Co-operation and Development (OECD), global GDP is expected to grow 3.5 percent next year, down from 3.7 percent last May.

For the US economy, OECD expects a 2.9-2.7 percent growth over the next two consecutive years with the risk of a 0.8 percent decline in 2020, as the US administration is planning to impose 25 percent tariffs on all Chinese goods.