The US dollar has surged in the wake of another too-hot US CPI print, a dovish ECB and disappointing credit data out of China. The DXY index is now approaching its peak of last autumn (~106 currently, vs ~107 on 1st November), and our sense is that the dollar is likely to stay stronger for longer than we had previously anticipated. Our US Economics team now expects the FOMC will not cut the fed funds rate until the second half of the year, while the ECB (and most other G10 central banks) are increasingly signalling that they will start cutting before that. As such, we are reviewing our end-2024 currency forecasts; a period of consolidation at some point ahead of the next FOMC meeting in three weeks’ time seems probable, but the dollar’s strength may well have a bit further to run.
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