USD 2024 Forecasts

The consensus viewpoint for 2024 is that the Dollar will gradually ease, attributed to a decelerating economy and declining inflation, enabling the Federal Reserve to undo some of the recent interest rate hikes it implemented.

However, there is considerable uncertainty regarding the timing of these rate hikes, given that the U.S. economy has demonstrated an ability to surpass expectations. This has led to a divergence of views among experts at major investment banks.

Amundi Asset Management

Forecasting Dollar weakness is a conviction call for 2024 at Amundi, Europe's largest asset manager, aligning with the broader consensus.

In their year-ahead outlook note, Amundi suggests that the anticipated mild U.S. recession in the first half of 2024, considered a base case, may not have as positive an impact on the USD as observed in the past.

Analysts indicate that unless a hard-landing scenario occurs, deteriorating U.S. data is expected to negatively impact the USD through two primary channels:

1) a reversal of U.S. exceptionalism (which becomes even more likely if Chinese growth stabilizes)

2) the Fed shifts focus to growth and enters a cutting cycle

"Entering 2024, should the USD continue to trade at a higher premium relative to fundamentals (that have dropped compared to last year), it will be vulnerable to pullbacks when moving from policy tightening to policy easing," stated Amundi.

Goldman Sachs

Recent developments have surpassed the base-case assumptions for 2024 at Goldman Sachs, leading economists at the Wall Street bank to revise down their dollar forecasts ahead of the new year.

In the wake of recent disappointments in U.S. inflation readings and the December Federal Reserve Open Market Committee meeting, economists at Goldman Sachs have made a "significant adjustment to their Federal Reserve outlook.

Goldman Sachs has revised its expectations and now anticipates that the Federal Reserve will implement five interest rate cuts next year, a notable increase from the single cut initially projected in its 2024 Outlook publication. "Our new forecasts incorporate more Dollar weakness than before," Stated by Kamakshya Trivedi, an analyst at Goldman Sachs.

Goldman Sachs has adjusted its projections for the Pound to Dollar exchange rate, now forecasting it to reach 1.28 in three months—an upgrade from the previous forecast of 1.25. In six months, the pair is expected to be at 1.30, remaining unchanged from the previous forecast. For the 12-month timeframe, the target has been raised to 1.35 from the previous projection of 1.30.

The Euro to Dollar exchange rate is predicted to be at 1.08 in three months - up from 1.04 previously, 1.10 in six months -up from 1.06, and 1.12 in twelve months - up from 1.10. Meanwhile, the Dollar to Yen exchange rate is forecasted at 145 - down from 155, 142 - down from 155, and 140 - down from 150 at the respective time points.

The Federal Reserve seemed to indicate a shift in policy stance during its December policy update when it opted to keep interest rates unchanged at current levels but effectively endorsed market expectations for a series of rate cuts in 2024.

As a consequence, U.S. Treasury yields declined, and the Dollar weakened, aligning with the consensus expectation that 2024 will be marked by a gradual depreciation in value.

ANZ Bank

ANZ Bank anticipates a weaker Dollar and maintains some of the more bearish predictions for the USD.

"Fading fiscal support in the US combined with the impact of interest rate hikes will impact growth in the US,"

Stated by Mahjabeen Zaman, an analyst at ANZ. "This adds to our bearish view of the USD."

ANZ envisions the Pound-Dollar exchange rate to be at 1.32 by mid-year and 1.34 by year-end. Regarding the Euro-Dollar, ANZ anticipates a mid-year level of 1.13, followed by an increase to 1.15 by year-end.

Bank of America

Bank of America's 2024 forecasts affirm its more bearish outlook on the U.S. Dollar compared to the consensus. Analysts at the bank suggest that Federal Reserve interest rate cuts "matter more for the market" than cuts at other central banks.

Bank of America anticipates the EUR/USD to surpass the 1.10 level in the coming months and ascend toward its fair value.

Thanos Vamvakidis, Head of G10 FX Strategy at Bank of America, mentioned in a media briefing that in 2023, he and his colleagues were more bullish than the consensus on the Dollar, but for 2024, the opposite is true.

The forthcoming weakness in the USD is expected to be based on the anticipation that U.S. economic growth will moderate, resulting in a smaller outperformance gap for the U.S. compared to other regions in a "U.S. recoupling."

Bank of America envisions the Pound-Dollar exchange rate to be at 1.26 by mid-2024 and rise to 1.31 by the end of the year.

The risk for those bearish on the USD is that the Federal Reserve maintains interest rates at higher levels for a more extended period than current market expectations, or if global markets succumb to a more severe-than-expected economic downturn.

‍

Morgan Stanley

Morgan Stanley anticipates that the USD will remain robust as rate differentials continue to favor the USD.

Strategists at the Wall Street bank have identified selling Euro-Dollar as a top thematic trade for 2024. The level of Dollar strength projected by Morgan Stanley is expected to be noteworthy.

"Our strategists forecast lower EUR/USD by year-end. Data in Europe continue to soften, with the risk of a technical recession rising further," says Morgan Stanley. The bank anticipates that EUR/USD will revert to parity by the first quarter of 2024 and remain around the 1.00 level for the majority of the year.

Danske Bank

Analysts at Danske Bank also maintain a positive outlook on the Dollar in 2024, although they acknowledge that the recent weakness in the currency may persist into early 2024.

Danske Bank anticipates that Euro-Dollar will trade at lower levels on a 6-12 month horizon, considering factors such as relative terms of trade, real rates (growth prospects), and relative unit labor costs.

Danske Bank maintains a strategic bearish outlook on EUR/USD and anticipates the pair to decline to 1.10 in three months, 1.07 in six months, and 1.05 in twelve months.

HSBC

HSBC's call for U.S. dollar strength in 2024 is a counter-consensus view.

HSBC's forecasts indicate that Euro-Dollar will trend lower, given the possibility that the Federal Reserve and other central banks may not be able to loosen monetary policy to the extent that markets anticipate.

Consequently, HSBC warns that there has already been a considerable amount of optimism expressed by markets, and the challenges for this optimism to be sustained are even greater now.

"We retain our expectation for a stronger USD during 2024, in contrast to the consensus," Daragh Maher, Head of Research for the Americas at HSBC, emphasizes the cautious outlook for the U.S. dollar.

HSBC's forecasts for Euro-Dollar include a projection of 1.06 by the end of the first quarter of 2024, 1.04 by mid-2024, 1.02 by the end of the third quarter, and 1.02 by year-end.

HSBC anticipates that 1.18 will serve as the anchor for the Pound to Dollar exchange rate from mid-year through to the end of the year.