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Will the US Dollar pick up in 2020?

The US dollar remained in the positive note for the year so far and the index fluctuated between 95.03 and 99.67 in the past 52 weeks. In 2019, the US dollar has managed to rally despite a dose of Federal Reserve rate cuts and an adverse current account balance. Will the US dollar pick up in 2020?

This turned out to be the most difficult question of the year as market observers have been cautioning of an upcoming global recession. In the midst of the trade war with China, the Fed has been trying to lower the benchmark rates instead of the market falling in the hands of recession.

US dollars
Courtesy: Sharon McCutcheon on Unsplash

CIBC Capital Markets expect the US dollar to pick up in early 2020 on improved interest-sensitive demand, particularly in housing after a softer Q4 pace. The economists believe that this should see the Fed put away the rate cut tool for good, which on its own would be supportive for the dollar.

The global uncertainty is likely to gradually reduce over the course of the coming year. In the next year, the market could oversee a US-China trade deal that is waiting to be tested, lingering uncertainties over post-Brexit UK-EU trade talks, and overseas economic weakness still evident.

The Goldman Sachs expects that if the global growth rebounds and the premium in the dollar fades, the US dollar would weaken in 2020 and beyond. This also includes deeper rate cuts from the Fed. The Fed keeps its benchmark rate in a target range of 1.5% to 1.75% and signaled to keep them on hold through 2020.

Read: Why investors need to stay cautious heading into 2020

The jobless rate is expected to be the same 3.5% by late 2020 and economic growth is likely to be at 2% in 2020 and 1.9% in 2021. Inflation is predicted to hit 2% in 2021, unchanged from the previous projection. The CME Group’s FedWatch tool predicted that rates will remain at the current levels through December 2020.

The world is expected to exit 2020 with an improving tone overseas backed by the lagged impacts of earlier monetary stimulus, clarity on certain of the trade files over time, and fiscal stimulus in Japan, and potentially down the road in Europe, according to a CIBC report.

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