Barclays Research discusses its USD outlook in 2019.
"We expect the USD to sustain its high-level – ie. overvalued – range trade against other G10 FX while continuing to grind higher versus more challenged EM currencies.
As in recent months, we expect the USD’s modulation against other G10 to reflect the ongoing tension between high valuation of the greenback and US assets and the growing interest rate advantage of the dollar as US rates further diverge from G10 peers. As confidence in the US expansion waxes and wanes, we expect the USD to alternately trade towards range highs and lows," Barclays argues.
With markets underpricing the Fed, in our view, and overly exuberant on trade tensions, we expect the USD to rebound towards the upper end of its range early in 2019 as the likelihood of sustained Fed hikes becomes more apparent," Barclays adds.