USD seen losing ground in early 2018 – TDS

Strategists at TD Securities believe the greenback could lose some ground early into the next year.

Key Quotes

“Fed communications have kept a December rate hike priced but low inflation remains a concern. We continue to expect a December hike as the bar remains high for a hold. Tax reform is still likely to be delayed past this year, and shutdown risks and Fed chair pick loom. GDP growth is on track to average above 2% in 17H2 while inflation remains subject to further disappointment”.

“A gradual Fed hiking path, an unwind of the Trump trade, and less upward pressure from global rates should keep Treasury yields rising at a more modest pace. However, we continue to see some upward pressure on rates as balance sheet proceeds while the Fed continues to deliver additional hikes”.

“We think the USD's corrective rebound is nearing its end and look for it to weaken into early 2018 as convergence trades regain traction. The next Fed chair is a near-term risk, but we continue to believe that the macro conditions that allow the Fed to tighten from here allow other CBs to move faster and further”.