The US dollar is off to a strong start to 2024. Here’s why it’s unlikely to last.

The US dollar has had a relatively strong start to 2024, but some analysts believe the greenback is even more likely to depreciate later this year.

The ICE US Dollar Index DXY,
which tracks the currency against a basket of six major rivals, has risen about 2.1% this year, according to market data from Dow Jones.

The dollar rose as traders scale back their expectations for when the Federal Reserve will start cutting interest rates this year, analysts at BofA Global Research said.

Until late December, traders were pricing in a chance of up to 90% for a rate cut in March, but those odds have since fallen to about 46% as of Friday, according to the CME’s FedWatch Tool. Meanwhile, the total amount of rate cuts expected this year, which reached 170 basis points in mid-January, has now fallen to around 135-150 basis points.

However, the greenback is likely to depreciate throughout the rest of the year, analysts at the investment bank wrote in a note Thursday, adding that much of the retreat would likely occur in the second half of 2024.

Analysts at BofA said no recession is expected this year and anticipate the Federal Reserve will begin cutting its benchmark rate in March. Such a scenario is negative for the dollar, as analysts say Fed easing would likely support risky assets with US economic growth remaining resilient.

Based on historical data, the performance of the ICE US Dollar Index has been mixed since the start of the Fed’s first rate cut in the past six cycles, and has been relatively flat on average in subsequent quarters, analysts said.

“This is largely due to the dollar’s perceived ‘safe haven’ status and its negative correlation with risk, as cutting cycles have often been associated with recessions,” they wrote.

Jonathan Petersen, senior market economist at Capital Economics, echoed this point in a note on Thursday. He expects the dollar to face headwinds stemming from strong risk appetite in global markets and declining bond yields in the United States later this year, and expects the greenback to remain rangebound against most major currencies for much of the year. of 2024.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *