The majority of FX strategists in a Reuters survey said that the dollar’s current weakness would last for the remainder of the year and that economic data will be the main factor influencing major currencies for the remainder of 2023.
The dollar had an insurmountable advantage over its rivals due to the stronger-than-expected U.S. economy and rising Treasury yields as the Federal Reserve raised interest rates to combat excessive inflation.
Nonetheless, the dollar is now weaker than it was last month, having lost over 2.0% from its top, while the dollar index is up around 2% for the year due to fresh views that the Fed is done raising interest rates.
Nearly two thirds of analysts (28 of 45) who responded to a second question predicted that by year’s end, the dollar will likely trade lower than its present levels versus key currencies, indicating that the current trend of the dollar’s depreciation has further to go.
In addition, they project that it would weaken over the course of the next year in relation to the euro and other G10 currencies, a prediction that analysts have made all year but have been repeatedly refuted. Some seem more certain that they will be correct this time.
Senior currency analyst at MUFG Lee Hardman stated, “It looks like we’ve reached a point where yields and the dollar have peaked out. The dollar and U.S. yields have had a strong bullish trend over the (past) two to three months.”
The markets are now more certain that the Fed is done hiking, so it will be more difficult for yields to reach new highs this year. Speculation has already begun to pick up steam again that the Fed may reverse course in 2019 and that there may be more aggressive rate cuts.
Just 26 out of 49 analysts who were asked what will be the main factor influencing major currencies for the remainder of the year indicated economic data. Three mentioned the need for safe havens, while another twenty mentioned interest rate differences.
After a stunning year and a half of resistance to rate rises, the world’s largest economy may now be showing signs of weakness, according to recent job statistics. Nonetheless, the US economy continues to outperform all of its competitors.
The most recent statistics released by the Commodity Futures Trading Commission indicated that a significant portion of currency speculators remained net-long on the US dollar, indicating continued support for the US dollar.
We believe that the dollar will continue to run higher until year-end, especially versus currencies whose fundamentals remain weak. As of right now, we are still strategically long the dollar. The main example of it would be EUR/USD, according to Simon Harvey, head of FX research at Monex Europe.
The GDP of the euro zone contracted by 0.1% in the previous quarter and is predicted to stagnate this one, narrowly avoiding a recession. After recovering all of its annual losses, it is anticipated that the euro would rise by about 4.0% during the next 12 months.
In the following three, six, and twelve months, the common currency was expected to trade at $1.07, $1.08, and $1.11, according to the median forecasts of 72 foreign exchange strategists. The projections remain mostly unaltered from a study conducted in October.
The Japanese yen, which has underperformed against other major currencies this year, is anticipated to continue to face pressure in the near future.
In response to a different question, 20 analysts gave a median response of 152/dollar when asked what the lowest point the yen will trade versus the dollar by the end of the year would be.
Nonetheless, it is anticipated that the currency would recover the majority of its 2023 losses during the following 12 months. The currency has lost about a third of its value since 2021, including 13% this year alone.
It is predicted by the poll that in a year, the value of the yen would increase by more than 10% to trade at $136/USD.
Already up 1.5% in 2023, sterling is expected to rise 3.5% in a year to $1.27.
It is anticipated that emerging market currencies would not show significant gains versus the declining US dollar until far into the next year.