Foreign exchange forecasters at ING expect that the US Dollar can maintain a firm tone in the short term. It does, however, expect notable deterioration over the second half of the year which will trigger rate cuts.
The bank expects that yield spreads will move against the US Dollar with the Bank of England resisting any rate cuts.
The bank expects that the Pound to Dollar (GBP/USD) exchange rate will strengthen to 1.33 at the end of 2023.
US Economy to Deteriorate
ING considers that the dollar could hold a firm tone in the short term, especially with the Fed maintaining a hawkish tone, but it questions whether this stance is sustainable.
According to ING; We argue that the sustainability of this kind of dollar trend strongly relies on hard data confirming price pressure remain elevated and the US economic outlook stable.”
It adds; “This may be a story for the near-term, where the dollar can still find some support, but we see the second half of the year as the period where evidence of sharply slowing US economic activity will force large cuts by the Fed and cause a rapid dollar depreciation.”
ING adds; “Our team forecasts that they are enough to curtail the tightening cycle and prompt 100bp of easing in the fourth quarter.”
Yield Spreads will Underpin Pound Dollar (GBP/USD) Exchange Rate
ING is still cautious over the Pound outlook, especially as it considers that market expectations surrounding Bank of England interest rates are too high.
Overall, ING expects that BoE rates have peaked at 4.50% and an eventual reassessment of BoE expectations will be an important headwind for the Pound.
Nevertheless, the bank expects that the BoE will resist rate cuts until at least the second quarter of 2024.
In this context, it expects that BoE rates will be 25 basis points above US Fed Funds rates by the end of 2023 and the differential will widen by 125 basis points by the end of the first quarter of 2023.
ING expects widening rate differentials will be crucial for currency markets with the dollar losing ground and GBP/USD heading above 1.30.
JP Morgan has dropped its negative dollar bias at this stage and does not expect that the US currency will lose traction later in the year.
It adds; “Global growth is shifting at the margins towards a less-bearish USD backdrop. In this context, it adds; “Growth models have neutralized USD shorts.”
JP Morgan forecasts that the Pound US Dollar exchange rate will decline to 1.17 at the end of 2023.
The bank expects that yield spreads will move against the US Dollar with the Bank of England resisting any rate cuts.
The bank expects that the Pound to Dollar (GBP/USD) exchange rate will strengthen to 1.33 at the end of 2023.
US Economy to Deteriorate
ING considers that the dollar could hold a firm tone in the short term, especially with the Fed maintaining a hawkish tone, but it questions whether this stance is sustainable.
According to ING; We argue that the sustainability of this kind of dollar trend strongly relies on hard data confirming price pressure remain elevated and the US economic outlook stable.”
It adds; “This may be a story for the near-term, where the dollar can still find some support, but we see the second half of the year as the period where evidence of sharply slowing US economic activity will force large cuts by the Fed and cause a rapid dollar depreciation.”
ING adds; “Our team forecasts that they are enough to curtail the tightening cycle and prompt 100bp of easing in the fourth quarter.”
Yield Spreads will Underpin Pound Dollar (GBP/USD) Exchange Rate
ING is still cautious over the Pound outlook, especially as it considers that market expectations surrounding Bank of England interest rates are too high.
Overall, ING expects that BoE rates have peaked at 4.50% and an eventual reassessment of BoE expectations will be an important headwind for the Pound.
Nevertheless, the bank expects that the BoE will resist rate cuts until at least the second quarter of 2024.
In this context, it expects that BoE rates will be 25 basis points above US Fed Funds rates by the end of 2023 and the differential will widen by 125 basis points by the end of the first quarter of 2023.
ING expects widening rate differentials will be crucial for currency markets with the dollar losing ground and GBP/USD heading above 1.30.
JP Morgan has dropped its negative dollar bias at this stage and does not expect that the US currency will lose traction later in the year.
It adds; “Global growth is shifting at the margins towards a less-bearish USD backdrop. In this context, it adds; “Growth models have neutralized USD shorts.”
JP Morgan forecasts that the Pound US Dollar exchange rate will decline to 1.17 at the end of 2023.