Analysts at Deutsche Bank are expecting a good year for the US dollar. picture alliance / ZUMAPRESS.com | La Nacion
According to Deutsche Bank, the US dollar will rise this year due to a slow pivot by the Federal Reserve and election uncertainty.
Analysts expect the dollar to rise to $1.05 per euro by early 2024, while the yen will be at 150.
Markets will likely focus on Trump’s foreign policy and trade priorities, which include imposing 10 percent tariffs, the bank said.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by an editor.
The U.S. dollar is on track for a positive year despite expected Federal Reserve interest rate cuts, Deutsche Bank said on Thursday.
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Analysts predict the dollar will rise
In the first months of 2024, analysts see the dollar rising to $1.05 per euro from the current $1.097. Analysts also forecast the dollar will be at 150 yen, up from 145 yen today.
According to George Saravelos, head of foreign exchange research at the bank, dollar strength will be due to the Fed’s delayed dovishness.
With the US having the least urgency to ease monetary policy, higher and longer-term interest rates will provide further support to the dollar. This is because other G10 economies will pivot sooner due to worsening growth-inflation ratios, he explained.
“The Fed is projected to be the most dovish central bank given the higher base rates over the next two years, but there are reasons to doubt that this will happen as quickly as estimated,” Saravelos wrote.
And if the Fed cuts interest rates, it won’t necessarily lead to a decline in the dollar, he added, noting that the six previous easing cycles were more often followed by a strengthening of the currency.
Instead, the dollar will likely only weaken if the U.S. falls into recession, which most economists consider unlikely.
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Here’s how geopolitical tensions and the US elections affect the dollar:
The dollar is receiving further support from global uncertainty stemming from both geopolitical unrest and the US elections.
The dollar’s reputation as a safe haven means it is often buoyed during times of international unrest, and investors are likely to continue to hold on to the currency as the Middle East conflict escalates.
In the meantime, markets will begin to price in their expectations for the US presidential election by around March, when the two candidates are expected to be announced.
“With U.S. domestic policy uncertain until the outcome of the congressional elections is known, the market will likely focus on Trump’s foreign and trade policy priorities, which include imposing a uniform 10 percent tariff on imports,” Saravelos wrote . “Such a policy is likely to have a materially positive impact on the dollar, and with very little priced in, the risks here appear to be asymmetrical to dollar strength.”
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