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Trade Weighted USD to continue to decline - Wells Fargo

According to analysts from Wells Fargo, the trade-weighted dollar will continue to decline and they expect a rate hike in December. 

Key Quotes: 

“Improved growth and steady inflation, along with a lower unemployment rate, provides a basis for another FOMC move to raise the funds rate in December. Meanwhile, the benchmark 10-year rate is expected to continue to drift upward in the fourth quarter and into the first half of 2018. For the year ahead, the Fed’s pursuit of a smaller balance sheet will add to the upward pressure on interest rates. Finally, the shift for the U.S. Treasury to sell more bills than anticipated will also tend to shift short-rates upward in the year ahead.”

“We anticipate the trade-weighted dollar will continue to decline as relative economic growth and central bank policy action will favor foreign currencies such as the euro and Canadian dollar.”

“We are still expecting a modest tax cut to be enacted, but the magnitude will be less than has been proposed and the timing will likely be a bit later. We anticipate a doubling of the standard deduction and an increase in child credit that will boost middle and lower-middle disposable incomes. We have shifted the effect of the tax cuts into the second quarter of 2018, assuming passage of a $1.5 trillion cut over 10 years in early spring of next year. Our baseline assumptions also include a reduction in the statutory corporate income tax rate to 25 percent, but we believe the reduction will either be temporary and/or be phased in over time.”

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