USD to weaken against major currencies in 2023 – HSBC
21.11.2022, 11:38

USD to weaken against major currencies in 2023 – HSBC

The momentum behind the USD’s strength is fading as the Fed’s hiking cycle comes to an end, with volatility likely subsiding. Economists at HSBC expect the USD to weaken against major currencies in 2023.

Interest rate volatility could subside, removing a key tailwind for the USD

“USD yields remain elevated, but the speed of further gains is likely to slow from here. The Fed has lifted rates by 375 bps since March 2022, and we expect two more 50 bps rate hikes in December 2022 and February 2023, followed by a long pause. This may curb rate volatility and remove a key leg of support for the USD.”

“Global growth momentum is starting to show signs of petering out. If this shows further signs of moderating, then it should imply an even less potent USD, all things being equal. We realise that there are still plenty of concerns in the global economy, including hard-landing risks or the over-tightening by major central banks that could cause meaningful volatility in financial markets and a more powerful USD temporarily. But many of these concerns are well factored in by markets.”

“Risk appetite may be supported by a stabilisation in US yields alongside a bottoming in global growth dynamics, which could further weigh on the USD.”

“The extreme levels of USD overvaluation are unlikely to remain justified, and we expect a choppy outlook for the currency over the next few months, followed by a weakening path from 2Q23 onwards.”

 

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