USD weakness to persist - NBF

Explained that the US dollar could see occasional bouts of strength, they continue to expect a mostly downward trend over the next months for the greenback.

Key Quotes:

“The trade-weighted U.S. dollar started 2019 just like it ended last year, i.e. painfully. The return of risk, as evidenced by surging global stock markets in January, lifted most major currencies at the expense of the big dollar, the latter registering a third consecutive monthly decline in trade-weighted terms. Risk-on sentiment and resulting woes for the greenback are largely due to the Fed’s more cautious tone. Concerning developments in the global economy and financial markets and their potentially negative implications for the U.S. economy have indeed convinced the Fed to adopt a less aggressive path to policy normalization. But domestic issues, particularly the potential for an already flat U.S. yield curve to invert, likely also played a part in the Fed’s change of stance.”

“A flat yield curve coupled with a near-neutral fed funds rate, restrains the ability of the Federal Reserve to tighten U.S. monetary policy much further. So, while the U.S. dollar could see occasional bouts of strength ─ e.g. coinciding with Fed signals or the return of risk aversion ─ we continue to expect a mostly downward trend over the forecast horizon for the trade-weighted greenback. Besides small tweaks to near term GBPUSD and USDCNY targets to reflect a stronger-than-expected start to 2019 for the British pound and the Chinese yuan, our currency forecasts are largely unchanged from last month.”