US dollar: Forecasts from seven major banks, strength to fade next year

As we enter the second half of the year, some analysts have updated their US dollar forecasts. Here you can find the expectations of seven major banks regarding the greenback’s outlook for the coming months.

Wells Fargo

“Our short to medium term view on the US dollar is unchanged, and we continue to forecast a stronger greenback against most foreign currencies through early 2023. With the US economy now likely to fall into recession and the Fed to start cutting policy rates, we now believe the dollar will peak in mid-2023 and start to gradually weaken in the second half of next year.”

Credit Suisse

“The core source of USD strength has been a hawkish Fed in the face of upside US inflation surprises and a still-resilient real economy, despite soggy financial markets. Still, some reasons are finally emerging for a pause in the USD strength trend. US exporters are noting a material negative impact from USD strength. Also, US yield curve inversion starting in 2023 points to genuine fears of a US recession taking hold in that year. Despite these US-specific risks, we still see ex-US problems that should keep the USD on the front foot. In the case of commodity currencies, a world facing a 2023 growth shock is not one that boosts their case, whether DM or EM. Meanwhile, JPY and GBP remain hindered by defensive central banks, while the EUR is in need of ECB alchemy to convince markets it can resist fragmentation pressures. And it’s still possible that the market is underpricing the likely end-point for the US terminal rate.”

TDS

“We continue to expect a resilient USD through the early parts of the summer. That said, the following months and quarters present increasing downside USD risks, especially as we see correlations and themes changing once again. Excessive Fed tightening could start to turn on the USD, especially as US equities and growth continue to come under pressure.”

Commerzbank

“We expect the USA to slide into recession next year. This risk is already visibly increasing. We, therefore, assume that an initially aggressive Fed will no longer have a sustained USD-positive effect. Admittedly, a US recession would not be detrimental to the USD if the Fed nevertheless maintained its high-interest rate level in consideration of inflation risks. However, we no longer expect this to happen. On the contrary. We expect a significant Fed rate cut cycle (to 2.5%) in 2023. Assuming that this view gradually spreads in the market, the looming US recession will thus increasingly become a burdening factor for the US currency.”

HSBC

“Our USD framework has rested on two forces coming together causing it to strengthen, namely a hawkish Fed and slower global growth. These have underpinned and will continue to support our strong USD view for the months ahead.”

MUFG

“While spreads have worked against the dollar, the sharp decline in global equity markets has provided support. We remain of the view that current market conditions are supportive of the dollar but that later in the year the US dollar is likely to weaken on a more sustained basis.”

CIBC

“We ultimately see slowing growth and a turn in inflation as convincing the Fed to back away from what its most hawkish members are now advocating, paving the way towards a softer greenback in 2023. But that's not going to be apparent in the next few months, leaving the near term risks still tilted towards the USD retaining or even building further on its recent gains.”