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U.S. Dollar is Set to Rise in 2019 Despite the Negative Consensus: HSBC

HSBC foreign exchange analysis

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- 'Weak Dollar' consensus wrong

- USD to rise steadily in 2019

- EUR/USD to reach 1.10

The U.S. Dollar has still got higher to go and the market consensus is wrong about it weakening in 2019, says HSBC’s Daragh Mahar.

“I am looking at a consensus which has got it wrong all through 2018, calling for Dollar weakness, now they have started 2019 with the same old record playing,” says Maher.

The Dollar will appreciate to 1.10 against the Euro this year, and although HSBC's forecasts are not that far away from where some of the other spot rates have reached recently, notably during last week's flash-crash, the outlook is still broadly favourable for USD.

Mahar finds the consensus that the opposite is likely to happen, “quite bizarre”. The US economy is still growing relatively strongly, and gains in the value of the USD have not been so considerable so as to cause a strong-currency headwind for the economy.

A strong Dollar can act like a dampener on economic activity by lowering imported-goods inflation and making exports less competitive.

Some analysts even compare the effects to a de facto interest rate hike by the Federal Reserve (Fed). The Dollar has already rallied 3.0% in 2018, on a trade weighted basis, to its current level, at the time of writing, and was 5.9% higher at its peak, yet this is not enough to “turn back the dial on Fed policy,” says Maher.

The Dollar Index also rallied strongly in 2014 when it managed “to do the Feds tightening for them,” says Maher, yet this not likely to be the case in 2019. During the course of 2014, however, the Dollar Index rose by a greater 13.7%, from 80.85 to 91.91.

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