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US Dollar 2023 Outlook


The dollar experienced a prolonged period of strength over the past year. However, it turned around in autumn. While there were many factors that influenced this trajectory, the Fed has been the dominant factor. As we look to the future, it seems that the Fed will continue to be the primary driver. The dollar is not the only thing that could fluctuate in the next months, as risk sentiment may also change.

What’s expected…

There is still a gap between what the market expects and what the Fed actually does. Fed officials have stated repeatedly that rate increases will continue. The market prices in a terminal rate below 5.0%. This means that there will be only two additional hikes in the next year, which is a much slower pace than the one seen so far.

To find out if the Fed will keep to its promise that rates will rise above what the markets expect, the Fed must wait until the first quarter. The economic situation might be significantly different in the coming months, which could change the Fed’s position. It’s not that the market thinks the Fed is being dishonest, it’s that the market thinks the Fed is being too optimistic about the economy.

Two roads crossed in a…

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