USD could peak during the fourth quarter – Wells Fargo

Analysts at Wells Fargo continue to see US Dollar strength through the end of 2022 as a result of the hawkish Federal Reserve. They point out the dollar could peak during the fourth quarter of 2022, starting a period of cyclical weakness against most currencies in 2023 as the U.S. economy enters recession and the Fed unwinds rate hikes.

Key Quotes: 

“We expect the U.S. dollar to strengthen moderately through the end of 2022 as the Fed raises interest rates 75 bps in September and policymakers reinforce their hawkish stance at the Jackson Hole Annual Symposium. However, we believe peak inflation and peak interest rates could be approaching, and we believe the dollar will broadly weaken against most G10 and select emerging market currencies over the course of 2023.”

“We expect the U.S. dollar to trend lower over the course of the 2023. While we also forecast other major central banks to ease monetary policy next year, we believe the Fed will likely cut policy rates quicker than peers. With interest rate differentials swinging back in favor of foreign currencies next year, the greenback should enter a period of cyclical decline against most G10 currencies as well as certain emerging currencies.”