US: Debt and the dollar
The tax reform bill and fiscally expansive budget will boost GDP in the shorter-run, but the changes don’t do much to alter the US’s trend growth rate. Instead, increased borrowings will leave the US running a 6% of GDP budget deficit at a point in the cycle when it should be in surplus. If that’s not enough, the US is competing for funds in an environment where global prospects have improved. These factors will keep pressure on US interest rates, which don’t offer much of a pick-up for foreign investors once currency hedged. The backdrop is also negative for the US dollar.