Fxwirepro: Greenback seen to recover next year; 10-year Treasury yields to rise to 2.85 pct

The US dollar is expected to recover from its downtrend going into next year, along with the Treasury yields also rising to around 2.85 percent during the period, accompanied by the projected three rate hikes by the Federal Reserve. The Fed will unwind its balance sheet at an incremental pace and under a new Chairman (Jerome Powell), will be working to ease regulations for US banks to provide “credit to families and businesses to sustain a prosperous economy”.

We, at FxWirePro, look forward to an improvement in the US economic growth, also reflected in the strength of its currency, as compared to modest expansion likely to be witnessed in the Eurozone, Japan, China, and most of Asia. Without strong growth optimism to keep politics at bay, the euro is susceptible to become vulnerable again.

By the latter half of 2018, the greenback is seen to heighten around the third-quarter and return some of its gains for the rest of the year. As the global recovery becomes more entrenched and balanced, many countries will be looking to roll back their loose monetary policies. For example, Korea was the first Asian country to hike rates in December; the Philippines is likely to be the next. Malaysia will first raise its statutory reserve requirement in H1 before it lifts rates in H2.

Further, in Q4 2018, we expect five Asian central banks to follow the footsteps of the Fed. While, Singapore will, in October, end its neutral stance for its SGD policy and shift to a mild appreciation stance, Japan is likely to fine-tune its yield curve control policy. Meanwhile, there will be more debate over whether the Eurozone and Japan are ready to end their negative interest rate policy in 2019.

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