- The dollar has fallen 8% this year against a basket of other G10 currencies.
- But it's poised for a rebound in 2018 if the GOP tax plan passes, according to Bank of America Merrill Lynch. Right now, the market is pricing in "almost nothing" on taxes.
- Tax cuts would lift economic growth, prompting the Federal Reserve to raise rates faster than it expects, the firm's FX strategists said.
2017 has not been the dollar's greatest year.
Against a basket of G10 currencies, the greenback has lost 8% this year. Even the prospect of tax cuts hasn't made the dollar more attractive to currency traders.
"It was a difficult year for people like me and people who try to make a living trading or investing in foreign exchange," said Daniel Katzive, the head of North America FX strategy at BNP Paribas, at a media briefing on Thursday.
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Many investors did not expect the dollar to weaken in an environment where the Federal Reserve raises interest rates thrice, stocks surged, and tax cuts moved closer to becoming law. But as the dollar rose from 2014 through 2016,
Like Vamvakidis, Katzive also forecasts a rally in the dollar, although this may only prevail through the middle of 2018.
"We'd be getting closer to the ECB pulling the trigger on rate hikes and other G10 central banks tightening policy," Katzive said. The "writing will be on the wall for the dollar versus these currencies where it's very expensive. We think we'll see a lot of investor hedging of dollar exposure begin to really pick up by the middle of next year."