(Bloomberg) -- A dollar slump is on the horizon in 2019, and it could last for years.
That’s according to JPMorgan Asset Management, which anticipates the greenback may start falling by the end of next year amid a cooling U.S. economy and a potential pause in the Federal Reserve’s hiking cycle, likely in the second half of 2019.
“Ultimately, the trajectory is for a downward move in the dollar over a multi-year period,” Gabriela Santos, a global market strategist at the $1.7 trillion money manager, said in an interview on Monday. “In the second half of next year, if the Fed did indeed pause, if the U.S. economy were decelerating, if the rest of the world stabilized or improved a little bit, you could see how the dollar could fall.”
The Bloomberg Dollar Spot Index has risen about 4.5 percent this year on the back of Fed rate increases and robust U.S. economic growth, and JPMorgan Asset says the strength may extend into 2019. The greenback turned higher starting in April, benefiting from economic strains in Europe and emerging markets, in part because of escalating trade tensions.
“In terms of why didn’t the dollar keep on falling this year, it’s not so much that the U.S. sped up so much more than expected, it’s that the rest of the world slowed down,” said David Kelly, the asset manager’s chief global strategist. “Looking to next year, we know that the U.S. is going to slow down to the rest of the pack.”
Slowing U.S. growth, a more cautious Fed and tightening by other central banks will probably combine to cause the dollar to end 2019 flat or lower compared with the end of this year, the firm predicts. That’s not to say it expects the shift to a weaker U.S. economy to come without turbulence.
If “the economy just slides down to 2 percent growth and then maintains it, then that’s a scenario in which the dollar could fall for multiple years,” Kelly said. “But if there’s some shock that pushes the U.S. into recession, causing another global crisis, then if it’s bad enough, then people might fly to the dollar as a flight to safety.”
©2018 Bloomberg L.P.
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