The US dollar has experienced a volatile month of trade within clearly defi ned bounds. With major central bank action still a long way off, peaking US recovery momentum will weigh on DXY near term, lifting the euro and to a lesser extent sterling, economists at Westpac report.
US Dollar Index to drop to 87.3
“We continue to expect the FOMC and other major central banks to 'hold the line' on policy for an extended period, anticipating that a US taper will not be seen until the second half of 2022 and that rate hikes will follow with a lag come 2024. Relative economic growth will arguably then remain the most compelling factor for FX markets in the period ahead.
“We also recognise that the US is likely at, or very near, peak recovery momentum as fiscal stimulus is winding down. In contrast, the economies of the euro area and UK are growing in strength as is Asia, a region that also stands to benefit greatly from pent-up economic development.”
“For DXY, we look for a further 3.2% fall to 87.3 in the second half of 2022 after which the US dollar is expected to stabilise and begin to grind higher as US monetary tightening takes effect.”
“Between now and September 2022, the euro is expected to gain 4.3% from 1.2179 currently to 1.27 on sentiment and strength in exports. Note, this is a level that is likely to create concern at the ECB over competitiveness, begetting a very slow policy normalisation process.”
“Having outperformed the euro in recent months, future gains for the UK's sterling are likely to be modest, a 1.8% rise to 1.44 is our base case.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.