US Dollar Index to rise towards 116.50-117.00 in the next few months – Standard Chartered

FX

Over the past month, the US dollar has surged sharply higher. Economists at Standard Chartered expect the US Dollar Index (DXY) to reach the 116.50-117.00 area but see the greenback peaking over a 6-12 month horizon.

USD to peak over a 6-12 month horizon

“On a three-month horizon, DXY is likely to rise towards 116.50-117.00.” 

“Near-term USD strength is likely to be driven by (i) the likelihood of Fed hiking rates at a faster pace relative to the other major centralbanks, which can continue to push interest rate differentials in favour of the USD, (ii) greater global growth concerns that are likely to fuel safe-haven USD demand, and (iii) elevated geopolitical concerns, especially in Europe and the Middle East.”

“Over a 6-12 month horizon, we expect the USD to peak. In our assessment, (i) we expect US inflation to gradually turn lower over 2023, which should give the Fed the leeway to slow or even pause rate hikes, (ii) rate hikes from other major central banks through 2023 should narrow the interest rate differentials with the US, (iii) capital flows are likely to turn away from the US on slower US growth and robust growth in Asia, and (iv) easing of geopolitical uncertainty around Europe and improving Chinese growth could potentially reduce the safe-haven demand.”

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