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Dollar Departures Could be Seen in 2019

This article was originally published on ETFTrends.com.

The U.S. dollar has been one of 2018's best-performing major currencies, a point confirmed by the Invesco DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) . UUP, which tracks the dollar’s movements against a basket of major developed currencies, is up about 8% year-to-date.

Some analysts and market observers believe the dollar is poised to retreat in 2019. Analysts argued that the dollar’s strength at the start of the year was just a brief spike in a broader downward trend that began in 2017, pointing to easing of trade tensions, the ebbing effects of U.S. tax cuts and the Fed’s hesitation to tighten its monetary policy.

“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,” reports Bloomberg. “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.”

The Other Side Of The Trade

Traders who are considering a bearish position on the dollar can capitalize on the further weakness through an inverse USD strategy, the Invesco DB US Dollar Index Bearish (UDN) . UDN is down almost 6.30% this year.

Data suggest that with 2019 right around the corner, being bearish on the dollar is an increasingly popular idea among professional investors.

“Whatever the reason, a popular view is for a dimmer dollar. The 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. The 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,” according to Bloomberg.

While the Federal Reserve is expected to raise interest rates for a fourth time this year later this month, slowing or suspending that tightening cycle in 2019 could weigh on the the dollar.

“However, market-implied odds show traders are skeptical about Fed rate increases in 2019, with less than a full hike expected next year after an anticipated move next week,” reports Bloomberg.

For more information on the USD, visit our U.S. dollar category.