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The USD Index (DXY) is on track for one of its best annual performances in decades in 2022. Economists at Credit Suisse think this unusual strength is justified.

USD looks set to remain supported going into 2023

“With underlying inflation substantially more elevated than the US Fed’s inflation target, the Fed initiated the fastest policy tightening in decades. This generated a major source of USD support through increased carry attractiveness. Furthermore, the USD’s safe-haven characteristics proved attractive at a time of deteriorating risk sentiment globally. Both these factors will likely remain in place going into 2023, and we expect the USD to remain largely overvalued throughout 2023.” 

“A turning point in the USD might come later in 2023. A dovish Fed pivot together with an improving global economic outlook would be needed for the USD to give back its gains.”

 

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