USD could peak by the first quarter of 2023 – Wells Fargo

The US Dollar hit a fresh 20-year high on Thursday versus the euro and the yen. Analysts at Wells Fargo, continue to forecast dollar strength over the remainder of 2022 and into 2023. They warn the greenback could peak by early next year and then soften against G10 and emerging market currencies through much of 2023.

Key Quotes: 

“The tight stance of policy alongside still high inflation suggests a recession is more likely than not next year. We look for the U.S. economy to enter a mild recession in the first quarter of 2023. The downturn should help alleviate inflation pressures enough to where the Fed begins easing policy in the second half of 2023.”

“Given the outlook for U.S. recession and a quicker end to the Fed tightening cycle at a slightly lower terminal rate than we had in our forecast last month, our outlook for the U.S. dollar has also changed. We still expect the greenback to gain against most foreign currencies through 2022 until early 2023 as the Fed tightens more quickly than most foreign central banks. However, that shorter Fed rate hike cycle, accompanied by U.S. recession and followed by Fed easing, means we now see a peak in the U.S. dollar by Q1-2023. Beyond that, we expect the greenback to soften steadily during most of next year.”