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US Dollar Strikes 18-Month High, Will Lose Value in 2019

Against a basket of currencies, the US dollar climbed on Friday to an 18-month high as investors sought safer assets in the aftermath of disappointing economic and political developments in Europe and China. Given a growing consensus for dollar weakness in 2019, now might mark an opportune moment for exchanging dollars into foreign currency.

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The US Dollar Index struck an 18-month high on Friday after European and Chinese economic data disappointed, and as investors sought safe havens following a “nothing new” Brexit meeting between European leaders and British Prime Minister Theresa May. Next week’s widely expected increase in US interest rates is also on investors’ minds.

By lunchtime in London, the dollar had gained the best part of a cent against the euro; it strengthened to $1.127 after IHS Markit’s preliminary PMI for December came in at only 51.3—the lowest eurozone reading since 2014.

EUR to USD - 1 Week chart - Latest
EUR/USD - 1 Week Chart - Latest

“Slowing [eurozone] economic growth was exacerbated by protests in France and on-going weak demand for autos,” IHS Markit said. The group also noted growing concerns over Brexit.

Needless to say, Brexit continues to dominate headlines, and Friday’s “nothing new” meeting between European leaders and British Prime Minister Theresa May allowed the dollar to appreciate versus the pound.

May was once again doing the rounds in Brussels with the intent of landing legal and political assurances over the Irish backstop—the most contentious feature of her current deal.

Per reports, May achieved little. When all was said and done, she could only show for herself “a five-point pronouncement on a single sheet of A4 paper which, if you look closely, states the obvious and offers nothing new to anyone who knows anything about the withdrawal agreement,” wrote Die Zeit’s Marlies Uken.

As a consequence, pound-dollar slipped 1.25 cents to $1.253.

Like the eurozone, China is slowing. Figures on Friday indicated that Chinese industrial production increased by only 5.4 percent in the year to November, which equals the lowest reading this decade.

The dollar rallied to buy 6.905 yuan.

USD to CNY - 1 Week chart - Latest
USD/CNY - 1 Week Chart - Latest

At 97.71, the aforementioned US Dollar Index—a measure of the greenback’s performance against 6 of the other 9 G10 currencies—is now 6 percent higher than its level on January 1st and is on course to post its tenth monthly gain this year. The strong dollar trend is, however, nearing its end, analysts believe.

A downturn in the US economy might be among the reasons for dollar weakness in 2019, as will skepticism over future Fed interest rate hikes, JP Morgan has said.

Morgan Stanley, too, is bearish on the dollar. A senior analyst at the bank recently expressed a belief that the dollar is overvalued by as much as 15 percent.

For Scotiabank, euro-dollar ends 2019 at $1.30—indicative of a potential 13 percent decline in the US currency’s buying power.

 

Further Reading

 

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