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The official forecast of the US dollar in 2018 is that it will decline. In the rest of the world, growth should catch up. And while the tax reform was supposed to stimulate the economy, that has yet to materialize. This is according to financial analysts.
How long will the decline last? Supposedly throughout the entire year of 2018. This will affect any number of investments, companies, banking decisions, etc. Even the transfer of money from one country to another will be affected, due to currency exchange rates.
A global growth pickup is expected. This will support commodity currencies and commodity prices (RUB, NZD, CAD, AUD). This will occur while capital outflows in the developed world, from various areas including the United States, weighs on G10 currencies and the dollar.
Arguably, while the rest of the world strengthens, the dollar weakens.
But Wait, Interest Rates Are Rising Fast!
With rising interest rates showing no sign of decline, the prediction of a declining dollar is a surprise to some. Ordinarily, a positive driver of the appreciation of currency is rising interest rates. But because of existing circumstances (having to do with diminishing returns), this is not expected to be the case in 2018.
But What about That Tax Bill?
True, the tax bill put forward by Trump was supposed to drive, in 2018, the value of the dollar. But, because the bill will not lead to a wall of repatriation or radically alter the relative competitiveness of America, the positive impact that was expected to affect the dollar has not occurred (and likely will not occur).
Quite the contrary, in fact, because the likely unaffordable cost of the tax cuts will mean that, in the future, higher government borrowing will be required to pay for them. This is going to make a serious impact on the United States dollar – and not in a positive manner.
So, combine a wider current account with a widening budget deficit and what do you get? You get a recipe for, over time, a weaker currency.
Okay, But What About Repatriation?
Something else that was supposed to, in 2018, drive the strength of the dollar was offshore corporate profit repatriation. But no, even this source is bringing skepticism from strategists.
Historically, repatriation was thought to increase the value of the dollar. But because of the current reforms, the circumstances of the past are not comparable to the circumstances of the present in several important aspects.
For starters, the onshoring of overseas funds is not being enticed. Whether they repatriate or not, firms will simply pay the tax. As long as un-repatriated earnings from overseas are not in liquid form, firms can, over eight years, space out the tax. The result? In terms of 2018 USD impact, tax reform falls completely out of the equation.
How Bad of a Decline Are We Talking About?
Given the current financial climate of the United States, and considering the above-mentioned aspects, the United States dollar index forecast is as follows:
- In the beginning quarter of 2018, a fall of 1.5% will be experienced.
- Until the end of the year, each following quarter will see a decrease of 1.0%
Whether the value of the US dollar rises or falls, one thing is certain. People will always need to send money to someone else, in another country, for various reasons. When that situation arises, trust Sharemoney.com to make that transfer safely, securely, and quickly.
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