2019 FX Outlook: Peak Dollar
2019 FX Outlook: Peak Dollar
think.ing.com

It's too early to call a top in the dollar. The Federal Reserve is now in the realms of late cycle tightening and should deliver four more hikes. Dollar hedging costs will remain extremely expensive and, barring a US-centric shock; we expect to see marginal new dollar highs against the EUR and the JPY over the next six months.

As 2019 progresses, expect a bearish dollar narrative to develop. US rates should be coming off their highs by the end of the year and as US growth converges lower to the rest of the world, expect investors to rotate out of US asset markets. A search for alternative sources of stimulus may also see the White House favour a weaker dollar.

Europe has been a big disappointment in 2018. Though sluggish growth has been blamed on a relentless stream of ‘one-off factors’, it is hard to see a significant pick-up in activity next year. EUR/USD will struggle to make it above 1.20, as the ECB barely lifts rates off the floor. European Parliamentary elections in May will also be in focus.

A lower EUR/USD in the early part of the year is typically not good news for CE4 currencies. The good news is that the Hungarian forint and the Polish zloty are already undervalued, while the market’s favourite villain – the Romanian leu – is too expensive to sell. Any Czech koruna gains should be primarily dependent on the hawkish Czech central bank, not EUR/USD.

On Brexit, UK parliamentary approval of the Withdrawal Agreement may not be seen until February. Even if the deal is passed, 2019 is unlikely to look pretty either as both the UK and the EU struggle to define what the ultimate relationship should look like. Expect the pound to continue to trade on volatility levels more common in emerging markets.

For EM, the gales blowing out of the US look set to continue through early 2019. Add in declining world trade volumes, and rising late cycle volatility and the EM environment looks challenged. But EM currencies have already discounted a lot of bad news. If they can survive the first half, modest rallies should be seen later in the year.

Within the EM space, we see the Renminbi steadily weakening all year as the economy adjusts to the US trade agenda. Our USD/CNY target is 7.30. In theory, a softer environment for crude oil prices in 2019 – we see Brent trading more in the USD60/bbl area than the USD70/bbl area – should be good for Asia. Assuming the Indian rupee can survive elections in May, central bank tightening in 2H19 should allow the currency to take advantage of the softer dollar story.

The big beasts of Latam - the Brazilian real and the Mexican peso, will continue to see substantial volatility as investors adjust to the new political reality. Argentina aside, better external accounts, low inflation and faster GDP growth suggest more resilience in the region. However, Brazil’s ability to pass fiscal legislation will very much set the tone early next year.

about 1 year conditional negative

Currency converter

Exchange rates

3000 DKK to VND
Frederiksberg, Kingdom of Denmark.
100 EUR to INR
Renukūt, Republic of India.
1 SGD to PHP
San Miguel, Republic of the Philippines.
1 PHP to SGD
San Miguel, Republic of the Philippines.
50000 PHP to SGD
San Miguel, Republic of the Philippines.
200 EUR to PHP
Baguio, Republic of the Philippines.
100000 KYD to SEK
Bjuv, Kingdom of Sweden.
1 XAU to USD
Wicklow, Ireland.
1000 EUR to BRL
São Paulo, Federative Republic of Brazil.
100 KRW to USD
Guwahati, Republic of India.
450 USD to HUF
Ada, Serbia.
450 USD to HUF
Ada, Serbia.
100 EUR to CRC
Berlin, Federal Republic of Germany.
10 EUR to HUF
Antofagasta, Republic of Chile.
100 CAD to PHP
Cebu City, Republic of the Philippines.
800 HRK to EUR
London, United Kingdom of Great Britain and Northern Ireland.
500 HRK to EUR
London, United Kingdom of Great Britain and Northern Ireland.
10000 VND to USD
Winnipeg, Canada.
100 VND to USD
Winnipeg, Canada.