Analysts at Scotiabank suggest that they believe the secular bull trend in the US dollar (USD) has largely run its course.
“We had long expected the USD to turn lower in the second half of 2017 but it appears that the rally peaked a little sooner and a little lower overall than we were forecasting.”
“The expectation that the USD rally would start to reverse in the coming months was premised on the idea that the US’ growth and interest rate advantage would start to weaken as we moved through the latter stages of this year and into 2018. That idea is starting to look prescient. Simply put, a lot of the good news for the USD is already largely factored. Investors are unsure that the Trump administration can advance its pro-growth agenda meaningfully at the moment, given the Russia investigation “cloud” that is lingering over Washington. This issue may be attaching a risk premium to the USD itself. Meanwhile, growth prospects are steadily improving elsewhere and other central banks are starting to look a little “twitchy” about their respective policy outlooks. The growth and monetary policy divergence narrative that supported the USD rally in the past few years now looks less compelling.”