The US-China trade war, prospects of slower global growth, and a more cautious tone by the Fed make inves-tors worry about the potential pause in rate hikes at some point in 2019. The base-case scenario now implies that after a hike in December, the will stop normalization should the effect from fiscal stimulus start to ebb, and the trade war consequences affect the economy.
However, as long as the US GDP and CPI growth rate stays robust, the Fed will unlikely send the markets a clear ‘dovish’ signal. In this context, there is no eminent threat to the dollar’s in the short- to medi-um term. However, should the yield curve stay inverted, and the 10-year Treasury yields continue to decline, re-cession worries could come to the fore. In this case, the greenback will have to turn to defensive.