At the beginning of 2018 it looked like the combination of proposed infrastructure spending, tax cuts and expected interest rate rises could have supported the USD. Despite a poor first quarter, the USD rallied as the four interest rate hikes materialised and the benefits of the tax cuts, especially for corporations, meant record earnings growth during 2018. The USD Index gained more than 4.3% over the course of the year. The rally in both the USD and US Equity markets turned down in the final weeks of the year.
Expectations are that there will only be one or two rate hikes this year as signalled by the Federal Reserve, as the economic outlook for the US cools. Many are even suggesting no rate hikes at all for 2019 as corporate earnings slow and the trade war impact ripples out. Recession has been mentioned as a possibility for late 2019 as the much anticipated “yield curve inversion” (where short-term yields are higher than long-term yields) is expected to occur.