December 20, 2018 / 1:35 PM / 3 months ago

Deutsche Bank sees three Fed rate hikes, more weakness for Chinese yuan in 2019

FILE PHOTO: The headquarters of Deutsche Bank in Frankfurt, Germany January 31, 2017. REUTERS/Kai Pfaffenbach/File Photo

LONDON (Reuters) - Deutsche Bank now expects the U.S. Federal Reserve to hike rates three times next year, down from a previous forecast of four rate increases, the firm said in its 2019 outlook.

The U.S. central bank on Wednesday raised rates for the fourth time this year and stuck by a plan to keep withdrawing support from an economy it views as strong.

“We have revised our view on the Fed to now include a longer but slower pace of tightening,” the bank said.

It now sees one rate hike in 2020, up from zero before and added that some rate cuts were likely in 2021 as economic growth slows.

“Inflation has also been stickier than we expected. But we still expect wages and prices to grind higher as economic slack is expended and the labour market tightens further,” the note said.

Deutsche Bank said it expected the U.S. dollar, the best-performing major currency this year, to depreciate against most major currencies in 2019, with the exception of the Chinese yuan.

Deutsche forecast the Chinese currency to weaken five percent as policy and interest rates diverge further.

Reporting by Dhara Ranasinghe; Editing Tom Finn

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