USD: Greenback to resume long-term decline against most major currencies - Wells Fargo

According to analysts at Wells Fargo, more tightening from the Federal Reserve is likely to be less supportive for the US dollar. They expect more currency volatility in coming quarter on global central bank actions. 

Key Quotes: 

“After declining around 8 percent on a tradeweighted basis in 2017, the dollar has since stabilized, reacting only modestly to recent central bank announcements. However, our currency strategy team looks for a return of currency volatility in the coming quarters as central bank activity continues to heat up.”

“The trend toward monetary policy convergence that began in 2017 will likely continue this year. The BoC hiked rates 25 bps at its January meeting, and we look for it to raise rates at least once more this year. The FOMC is widely expected to raise the fed funds rate at its March 21 meeting, and we look for the BoE to raise rates at its May 10 meeting after reversing its 25 bps “insurance” rate cut in November following the Brexit referendum in 2016.”

“However, our view remains that global monetary policy tightening will proceed at a gradual pace. The ECB is still wrapping up its asset purchase program, although its most recent policy statement did remove language about the option to expand the program if economic conditions deteriorate. We do not look for the ECB to raise rates until well into 2019, and the Bank of Japan remains firmly accommodative.”

“Our currency strategy team looks for additional monetary policy tightening from the FOMC to be less supportive of the dollar, given the later stage of the tightening cycle relative to other central banks. In the midst of near-term dollar stabilization, our currency strategy team looks for the greenback to resume its longer-term decline against most major currencies”