US dollar to continue its downtrend as global growth picks up - Wells Fargo

Analysts from Wells Fargo forecast that the US dollar will continue to slide as growth picks up in many economies, moving toward a convergence in monetary policy. 

Key Quotes: 

“Recent data indicate that growth in the global economy picked up in the first half of 2017, and global trade volumes have also accelerated. The recent strengthening in global economic growth reflects, at least in part, supportive policy stances in many countries. Not only did Chinese authorities adopt an expansionary policy stance when growth appeared to be slowing last year, but monetary policy has been accommodative in many other major economies as well.”

“With growth picking up in many economies, central banks in those countries are starting to transition to less accommodative policy stances. The Bank of Canada recently hiked rates for the first time in seven years, and we look for the European Central Bank to further reduce its monthly pace of bond purchases in the next month or two. In our view, the Bank of England (BoE) will hike rates next spring.”

“The trade-weighted value of the U.S. dollar rose to a 13-year high late last year due to market euphoria that U.S. fiscal policy would become more expansionary. However, the greenback has been following a downtrend in 2017 as markets have re-assessed expectations for U.S. fiscal policy.”

“Looking forward, we forecast that the U.S. dollar will continue to follow a downtrend as market expectations transition from monetary policy divergence (i.e., rates in the United States rising relative to rates abroad) to monetary policy convergence (i.e., other central banks adopting less accommodative policy stances.)”