Analysts at Wells Fargo, point out that with many G10 central banks likely to begin tightening monetary policy ahead of the Federal Reserve, they remain of the view for a gradual softening in the US dollar over the medium term.
“Even if inflation does prove to be to some extent transitory, combined with the overall growth recovery from the pandemic, it appears to be leading toward the start of a global tightening—or a policy normalization—cycle. Several emerging market central banks have already raised policy interest rates. In 2021, we expect central banks in Norway and New Zealand to begin raising interest rates, in 2022 we anticipate interest rate increases to begin in Canada and the United Kingdom, and we see the Federal Reserve raising interest rates starting in 2023.”
“The U.S. dollar may get some support for now, while COVID uncertainties persist and as the Fed appears to be moving closer to a slowing in bond purchases. Still, with many G10 central banks likely to begin tightening policy ahead of the Fed, our view remains for a gradual softening in the U.S. dollar over the medium term.”
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