There is a bearish outlook for the U.S. Dollar in 2019, with a particular focus on the U.S. dollar weakness against the major currencies. The reality of the exhaustive U.S. Fed Policy accommodation and U.S. government stimulus will be felt more acutely in the months ahead particularly at a time when the U.S. administration is expected to push ahead with its soft dollar protectionist agenda.

US Dollar Index

The added strain of flattering U.S. equities will also ramp up the level of discomfort at The White House, setting the stage for plenty of drama. The fact that the Fed is still projecting two more rate hikes in 2019, leaves room for this expectation to be let down on account of this uncertainty which would only drive U.S. yield differentials further out of the U.S. dollar’s favor.

US Yield Differential

There is already been growing concern over the U.S. dollar dominant role as a global reserve currency, and the current background serves as a viable catalyst for reserve currency diversification away from the Greenback. While resistance to U.S. policy, that would weaken the U.S. dollar and undermine the competitive advantage of the U.S. trading partners, there is a greater incentive in avoiding the risk associated with a strengthening U.S. Dollar.

Emerging Market economies are already struggling to manage their existing U.S. dollar-denominated debt exposure and a further appreciation in the Greenback in a backdrop of deteriorating sentiment would be a much bigger headache for the global outlook.

US Debt Securities

The Euro is in the best position to benefit from this outlook, with the single currency already second to the buck as a global reserve currency. At the time, the Japanese Yen and the Swiss franc are tied to policies that aggressively battle against currency appreciation, while the pound can’t be taken seriously with Brexit hanging over its head.

It is evident that the upcoming year is going to be an eventful one. Forex and stock traders will have to look closely at what the FED is expected to do and the current U.S. government situation, as that is the best approach for the upcoming year.