The burning questions that investors need to answer for 2018

2017 proved to be a poor year for the greenback, with the currency staging its weakest performance since 2003. This with a backdrop of three interest rate hikes, a tax reform bill that encourages repatriation of U.S. dollars held overseas, a strengthening U.S. economy and a soaring stock market. The justification has been that while the Federal Reserve may have been in tightening mode, they were no longer the only players in the room. 2017 also saw the first hike in a decade out of the Bank of England and even the ever-accommodative European Central Bank starting to scale back its stimulus. However, according to the latest CFTC Commitment of Traders Report, dollar positioning is starting the year quite short particularly against the euro (+$19.3 billion overall) which is the longest it has been since 2007. Furthermore, the bond market is still only pricing in around two further rate hikes from the Fed this year, even though Fed projections suggest three. Not to forget the changing composition of the Fed members and the slight hawkish tilt to minutes suggesting an upside to growth.