The U.S. dollar has been on a steady rise in the currency market due to the Federal Reserve’s actions, but analysts are predicting that this trend may begin to fade in 2024. The rise in U.S. bond yields and tightening monetary policy has bolstered the dollar, but it is expected to ease in the next year as the U.S. heads towards an economic recession and the Federal Reserve cuts interest rates.
ING strategists are calling the forecasted dip in the U.S. dollar’s value as “the long goodbye,” predicting that it will enter a sustained bear market in 2024. This shift in value is expected to lead to decreased currency market volatility as risk markets inflate on expectations of central bank easing monetary policy.
Analysts also predict that commodity currencies within the G10, such as those of Australia, New Zealand, and Canada, will become more popular in 2024. They anticipate that the U.S. dollar’s weakening will lead to increased interest in other currencies.
The relationship between the U.S. dollar and implied volatility is expected to change as well. As the dollar’s value weakens, it is predicted that implied volatility will decrease, leading to controlled fluctuations in the currency market, particularly for the euro and pound.
While there are differing views on the exact timing of the U.S. dollar’s decline, it is generally expected that the Federal Reserve will start cutting interest rates in the second quarter of 2024, leading to a weakening of the dollar. Despite these forecasts, some analysts believe that the U.S. dollar’s strength may not be over yet and could continue in the first half of next year.
Overall, the landscape of the currency market is projected to shift in 2024, with the U.S. dollar’s rise expected to fade and currency market volatility anticipated to decrease, leading to changes in the trading and value of various currencies.