Forecasts for the US dollar change all the time, affected by news events and relative sentiment towards the US economy. This continually updated article reviews the latest forecasts from banks and FX experts as well as news and recent movements of USD in the currency markets.
What’s in this US dollar forecast summary?
Economists expect the US dollar’s strength over the past year to reverse in 2023 as the Fed’s interest rate hikes cycle to an end.
A clear reflection of this is that the US Dollar index (measure of the USD strength against basket of currencies) which has pulled back from 20 year highs.
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You can also read our full Foreign Exchange Guide to the United states.
There are a number of factors that can influence the strength of the US dollar in the foreign exchange market. Some of the most important factors include:
Interest rates: Higher interest rates tend to attract more foreign capital, which can increase demand for the US dollar and lead to a appreciation of the currency.
Economic growth: A strong economy can lead to increased demand for the US dollar, as investors and traders seek to take advantage of the country’s favorable economic conditions.
Inflation: Low and stable inflation can help to support the value of the US dollar, as it suggests that the central bank is effectively managing the money supply and maintaining price stability.
Government debt: Large government debt can be seen as a burden on the economy and can lead to concerns about the country’s ability to service its debt, which can weigh on the value of the US dollar.
Political stability: Political stability can help to create a favorable environment for investment, which can increase demand for the US dollar.
Trade balances: A trade deficit (where a country imports more goods and services than it exports) can lead to a decrease in demand for the US dollar, as foreign countries have fewer dollars to reinvest in the US. Conversely, a trade surplus can lead to an increase in demand for the US dollar.
The market’s expectation for a rise in US inflation and thus interest rates pushed up the USD exchange rate against most currencies in 2022.
The strength of the US dollar was always set to continue when Jerome Powell said (at Jackson Hole) that the US central bank will ‘keep at it’ and is likely to keep raising interest rates to battle surging inflation.
The US Dollar has also proven itself to be a safe haven amid the Ukraine-Russia conflict as investors seek refuge from the uncertainty.
So what will the dollar do for an encore after it posted its biggest annual gain in six years? America’s high rate of inflation likely means ‘Dollar bulls’ (stronger dollar) are likely to remain in charge at least until U.S. inflation shows clear signs of peaking.
The US dollar is the most popular reserve currency so whether the USD rises or falls in the future is a difficult question and the answer depends on many factors.
A good way to consider the US dollar’s current relative value is to look at the recent US Dollar Index which measures the USD value against a range of peer currencies.
The following sections show a summary of trends and forecasts for popular US dollar exchange cross rates:
In early December the dollar dropped to 94 against the euro after rising to a 20-year high of 1.04 in late September, as markets predict that the aggressive interest rates hikes by the Fed to reign in inflation may be over.
However, due to the Eurozone’s reliance on gas from Russia, the euro will remain vulnerable while Putin’s so called Russian ‘special military operation’ in Ukraine continues.
From December and into early 2023 the AUD/USD has surged back towards 0.68. This is well up from recent lows below 0.62 in October, when the Reserve Bank of Australia surprised markets raising interest rates by a quarter of a percent (less than expected), a sign that inflation down-under may be under control.
However, the rise of AUD/USD has been more about USD weakness than any AUD strength as the greenback drops back from multi-year highs.
In December the loonie has steadied near its 90-day average around 0.74 relative to the greenback (1 USD = 1.34 CAD), this is down from the 0.77-0.79 range it had traded within all year until late August on inflation concerns.
GBPUSD is down around 15 percent this year and hit an all-time low (since decimalisation in 1971) in late September of 1.03 (1 USD = 0.97 GBP) — reacting to the controversial tax-cutting policies from the previous (new) chancellor.
The Bank of England has joined the global fight against inflation, but has raised rates by less than the US Federal Reserve.
So it seems the BoE’s gloomy economic forecasts has increased pressure on Sterling.
Into the final quarter of 2022 the peso is fluctuating around the key 20 level versus the US dollar.
When uncertainty increases, traders tend to move quickly out of emerging market FX such as the peso first before looking for safe havens.
Since the beginning of the war in Ukraine the rupee has weakened with the USD/INR exchange rate steadily rising to above the 81₹ level, well up from around 74₹ at the start of the year.
The Ukrainian crisis and its risks for energy supplies have pushed the dollar up against the rupee as India imports most of its oil requirements.
The Japanese yen has bounced back from record lows as we approach the end of the year. USD/JPY hit 150 in mid October — a more than 32-year low for the yen — prompting the Bank of Japan to intervene to support the struggling yen.
The yen has jumped more than 13 per cent since late October, when expectations that the US central bank will continue to aggressively raise borrowing costs sent the yen sinking to its lowest level since 1990.
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