No one can argue that 2018 has not been a prosperous year for the US economy. It has surpassed most analysts’ expectations at almost every turn, showing positive growth and an impressive resilience to a downward trend in the global markets. The USD’s value has mirrored this upward trajectory, hitting multi-month highs against GBP and the EUR on more than one occasion.
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Despite its current lofty heights, there have been worrying undertones developing over recent months, with growing concerns over whether the current prosperity can continue as we head into 2019.
With President Trump's tax reforms having an instant impact by boosting household incomes and oil prices rising by nearly 50% between mid-2017 and mid-2018, there was a sharp increase in capital investment in drilling, equipment and housing for oil workers.
These two factors alone helped boost US GDP, which is set to surpass 3% by the end of the of the year. However, this is unlikely to continue in 2019 and could even reverse, with oil prices now back to early 2017 lows and many of the key tax changes set to expire next year.
If this turns out to be the case, then we could see the USD start to weaken from its current highs.
Any improvement in the global markets, which could come in tandem with a thawing of the current global trade wars, could also accelerate any potential downturn for the greenback. This is because investors will become more risk adverse as the global markets improve, with safer haven currencies like the USD weakening as a result.
Looking ahead and Thursday’s interest rate decision by the US FED is likely to hold the most weight with investors. It is widely anticipated that they will raise rates once again, with the expected 0.25% rise probably now factored in to the current value of the USD.
This may well be the last hike for the foreseeable future, based on the FED's current outlook and economic concerns cited and as such, it may be that the USD has finally hit the crest of its wave.
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