DOLLAR INDEX - FUNDAMENTAL ANALYSIS
2023-2024 exchange rate forecasts from Nordea
As far as Federal Reserve policy is concerned, Nordea has revised its forecasts and now expects that there will be two further rate hikes with a 25 basis-point hike in July and another hike in the Autumn.
It also expects that the Fed will be slower to cut rates and adds; “The sticky core inflation picture and the resilient economy also mean that we postpone the first rate cut in our profile to the second half of 2024.”
As far as the ECB is concerned, Nordea agrees with the strong consensus that there will be a further hike in July.
At this stage the bank expects this will be the last rate hike, but does recognise the risk that rates will have to increase further.
It notes; “Risks are clearly tilted towards the hiking cycle continuing also after the summer, though, and if data holds up and core inflation proves sticky, hikes could easily continue in September and even beyond.”
In this context, there is a significant possibility that the ECB will complete rate hikes ahead of the Federal Reserve which would tend to support the dollar.
Nordea considers that markets are too pessimistic on the dollar on the short-term view and expects a Euro to Dollar (EUR/USD) exchange rate retreat to 1.07 during the Summer.
The bank still expects that the dollar will lose ground next year as it becomes clear that the Fed tightening has had a sufficient impact on inflation and the economy.
As far as Federal Reserve policy is concerned, Nordea has revised its forecasts and now expects that there will be two further rate hikes with a 25 basis-point hike in July and another hike in the Autumn.
It also expects that the Fed will be slower to cut rates and adds; “The sticky core inflation picture and the resilient economy also mean that we postpone the first rate cut in our profile to the second half of 2024.”
As far as the ECB is concerned, Nordea agrees with the strong consensus that there will be a further hike in July.
At this stage the bank expects this will be the last rate hike, but does recognise the risk that rates will have to increase further.
It notes; “Risks are clearly tilted towards the hiking cycle continuing also after the summer, though, and if data holds up and core inflation proves sticky, hikes could easily continue in September and even beyond.”
In this context, there is a significant possibility that the ECB will complete rate hikes ahead of the Federal Reserve which would tend to support the dollar.
Nordea considers that markets are too pessimistic on the dollar on the short-term view and expects a Euro to Dollar (EUR/USD) exchange rate retreat to 1.07 during the Summer.
The bank still expects that the dollar will lose ground next year as it becomes clear that the Fed tightening has had a sufficient impact on inflation and the economy.
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