USD: Some Strength May Be Left Before Year-End But It's A Different Story In 2019 - BofAML

Bank of America Merrill Lynch Research discusses the USD outlook into year-end and through 2019, thinks that the underlying trend will likely be bearish, even if there might be one more leg of USD strength into year-end.

"While some further Fed repricing (and associated USD strength) is possible into year end, we do not expect growth divergence to be the swing factor for the USD in 2019. Instead, a higher risk premium associated with twin deficits, political gridlock and late cycle concerns means USD depreciation, especially vs. low yielding, low beta currencies is our central scenario for 2019," BofAML argues. 

"Moreover, we caution against assuming the USD will benefit broadly in a global risk off scenario. The fact is the USD is the dominant safe haven only when China concerns are driving risk off, as we have observed over the past few months. If trade war concerns recede, the focus may shift to political brinkmanship in the US and Europe, a backdrop in which the USD typically underperforms the JPY and CHF," BofAML adds.