2023-2024 Exchange Rate Forecasts From MUFG
US Dollar: US Economy Set to Deteriorate
According to the bank; “While the impact is modest, the fiscal restraint will still be impacting at a time when substantial monetary tightening will also be feeding through to the real economy. It will strengthen expectations of weak recessionary economic conditions emerging later in the year.”
The Federal Reserve has maintained a hawkish underlying stance. Although there is an important element of uncertainty over the near-term policy decisions and whether rates will be hiked again, it has pushed back strongly against the notion that rates will be cut this year.
MUFG still expects that the Fed will shift its stance as the economy deteriorates.
It notes; “We still expect much clearer evidence of slowdown to emerge in H2 that sees the market re-price monetary easing by year-end. This will likely start to emerge in Q3 fuelling a more pronounced period of US dollar selling.”
A significant element in recent dollar gains has been renewed doubts surrounding the Chinese and global growth outlooks.
MUFG expects these concerns will ease; “We also see scope for global growth fears to ebb given our view that China economic activity is set to pick up in the second half of the year.”
The bank notes that there has been a deal to raise the debt ceiling with the Administration pledging to restrict government spending.
MUFG is still concerned over the US debt profile with the US eventually needing to tighten policy which will undermine growth.
Overall, it adds; “The US dollar cyclically and structurally looks like it has peaked with the high from September 2022 the high of one of the largest and longest US dollar bull runs in the floating exchange rate era.”
US Dollar: US Economy Set to Deteriorate
According to the bank; “While the impact is modest, the fiscal restraint will still be impacting at a time when substantial monetary tightening will also be feeding through to the real economy. It will strengthen expectations of weak recessionary economic conditions emerging later in the year.”
The Federal Reserve has maintained a hawkish underlying stance. Although there is an important element of uncertainty over the near-term policy decisions and whether rates will be hiked again, it has pushed back strongly against the notion that rates will be cut this year.
MUFG still expects that the Fed will shift its stance as the economy deteriorates.
It notes; “We still expect much clearer evidence of slowdown to emerge in H2 that sees the market re-price monetary easing by year-end. This will likely start to emerge in Q3 fuelling a more pronounced period of US dollar selling.”
A significant element in recent dollar gains has been renewed doubts surrounding the Chinese and global growth outlooks.
MUFG expects these concerns will ease; “We also see scope for global growth fears to ebb given our view that China economic activity is set to pick up in the second half of the year.”
The bank notes that there has been a deal to raise the debt ceiling with the Administration pledging to restrict government spending.
MUFG is still concerned over the US debt profile with the US eventually needing to tighten policy which will undermine growth.
Overall, it adds; “The US dollar cyclically and structurally looks like it has peaked with the high from September 2022 the high of one of the largest and longest US dollar bull runs in the floating exchange rate era.”