Further US Dollar weakness is likely in the months ahead – SocGen
The correlation between the Dollar and Fed Funds futures is unusually strong now, and if it persists, further USD upside is limited, economists at Société Générale report.
The US Dollar has rarely tracked Fed rate expectations more closely
The US Dollar was the weakest of the major currencies in the last two months of 2023, as markets grew increasingly confident that the Fed could engineer a soft landing for the economy, delivering multiple rate cuts and avoiding recession. Strong sensitivity to rate expectations will fade eventually, but only slowly and suggests that after a pause, further Dollar weakness is likely in the months ahead.
With markets priced for continued economic weakness in Europe and China, the biggest driver of the Dollar will continue to be how expectations about the US economy evolve, but easier Chinese fiscal policy would be supportive of regional growth and the AUD, in particular, would benefit from the prospect of slower RBA than Fed easing.
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FXStreet Insights Team
FXStreet
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