Further US Dollar weakness is likely in the months ahead – SocGen
|The correlation between the Dollar and Fed Funds futures is unusually strong now, and if it persists, further USD upside is limited, economists at Société Générale report.
The US Dollar has rarely tracked Fed rate expectations more closely
The US Dollar was the weakest of the major currencies in the last two months of 2023, as markets grew increasingly confident that the Fed could engineer a soft landing for the economy, delivering multiple rate cuts and avoiding recession. Strong sensitivity to rate expectations will fade eventually, but only slowly and suggests that after a pause, further Dollar weakness is likely in the months ahead.
With markets priced for continued economic weakness in Europe and China, the biggest driver of the Dollar will continue to be how expectations about the US economy evolve, but easier Chinese fiscal policy would be supportive of regional growth and the AUD, in particular, would benefit from the prospect of slower RBA than Fed easing.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.