The USD should be stronger for longer – HSBC
17.05.2022, 07:54

The USD should be stronger for longer – HSBC

The USD has benefitted from the Fed’s hawkish stance and expectations for softer global growth. The Russia-Ukraine conflict, ongoing global supply disruptions, and China’s growth challenges point to further USD strength but China’s pronounced policy stimuli would probably help offset some of these strong USD forces, economists at HSBC report.

Global growth risks skewed to the downside should support the USD

“We agree the market has priced in a lot of tightening by the Fed this year, but the fact that the Fed has a greater ability to deliver on the hikes that are priced in compared to many other central banks should keep the USD in a strong position. The Fed will also start to reduce its balance sheet from 1 June, which should benefit the currency gradually.”

“Ongoing uncertainties from the Russia-Ukraine conflict, high commodity prices, and the associated squeezes on real incomes and consumption might point to further downside risk to global growth dynamics, which should continue to benefit the USD.”

“With the current COVID-19 situation on the mainland, domestic production is impacted by labour shortages and transportation difficulties. This should also fuel broad USD strength. However, if strong policy stimuli emerge eventually in China, some of the strong USD forces will be mitigated.”

“For us to turn more cautious on the USD, an acceleration of global growth and a big about-turn by the Fed would likely be needed. However, we see no quick need to fully embrace that view.”

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