Monthly Wrap: USD – US Dollar’s strength stutters as global growth fears and Fed caution rise

Key Takeaways:
 

• Signs of slowing growth in the US and globally weigh on Fed hawkishness
• But persistent demand for safe havens stops US dollar falling far
• USD Monthly highs: £0.78, €0.89, AU$1.39, C$1.34, NZ$1.50
• USD Monthly lows: £0.75, €0.87, AU$1.35, C$1.30, NZ$1.43

 
The US dollar failed to push much higher in November as growth concerns took a toll and the Federal Reserve indicated that the rate was currently ‘just below’ neutral.
 
This caused speculation that the Federal Reserve was nearing the end of its interest rate hike cycle and may take a more dovish tone in 2019.
 
This was supported by recent economic data, which indicated that growth in both the US and globally is likely to slow in the coming year or so.
 
However, the US dollar has also been deriving support from heightened demand for safe-haven currencies amid the ongoing trade tensions between the US and China.
 
During a G20 summit at the beginning of December, US President Donald Trump and China President Xi Jinping announced a US-China trade truce that would allow for 90 days’ worth of trade negotiations.
 
It led to a short-lived period of US dollar weakness as investors briefly looked to riskier assets, but US-China tensions quickly flared up again.
 
With US economic output expected to slow in 2019, the US dollar’s potential for gains may be limited, especially if upcoming US data comes in weaker-than-forecast.
 
Investors will be paying close attention to upcoming US inflation and retail data next week, with more Federal Reserve news and growth stats coming later in December.
 
If US ecostats beat expectations, the US dollar is more likely to hold its ground, but dovish comments from the Fed would be USD-negative.
 
Additionally, if there are any genuinely positive developments or de-escalations in US-China trade tensions that could lead to stronger risk-sentiment, this could spark a more notable US dollar selloff.