US: Trump’s fiscal policy prompts reflation expectations and a stronger USD in 2017 & 2018 - BNPP

Research Team at BNP Paribas, suggests that in response to US President-elect Trump’s victory, BNP Paribas has revised their US GDP growth higher to 2.5% in 2017 and 3.0% in 2018.

Key Quotes

“Accordingly, we now forecast that the Federal Reserve will hike rates seven times by end 2018 begining with the December 2016 meeting. Policy rates will reach 2.0%. US 2-yr government bond yields move higher to 1.9% and 2.5% for end -17 and ’18, respectively. We now envisage 10-year yields at 3.0% and 3.5% over the same period. These are significant revisions in response to a dramatic and large fiscal stimulus.”

“In this respect, we forecast faster USD appreciation in 2017 and 2018 with the greatest gains against JPY. EUR weakness should reach a low at end 2017 and should now rebound vs USD in 2018 as ECB dovishness is likely to moderate. ECB asset purchases should end completely by mid 2018 at the latest. We see no such reversal of Bank of Japan (BoJ) dovish policy and forecast USDJPY rising to 135 by end 2018.”