CIBC Capital Markets economists anticipate the Federal Reserve (Fed) initiating easing measures a month earlier than currently priced. As a result, they foresee the US Dollar (USD) maintaining strength in the short term.
USD to gradually depreciate through the end of 2024
Our stance remains unwavering regarding the projection of one final bout of USD strength before the conclusion of this quarter. This conviction primarily stems from accumulating evidence suggesting that the US economy has adeptly adjusted to elevated interest rates, surpassing the expectations of many. Furthermore, we believe that markets have not yet fully acknowledged and priced in this prevailing theme.
Market adjustments have taken place, with current pricing indicating significant probabilities of the initial rate cut occurring during the June meeting. This remains slightly ahead of our forecast, anticipating the Fed’s easing in July. Any further recalibrations in this regard align with our prediction of a stronger USD in the short term.
Looking ahead of March, we anticipate a downward trajectory in the USD profile as the global economic outlook, particularly outside North America, shows signs of improvement. Moreover, the longer-term valuations for the USD appear considerably unfavorable. Those involved in markets outside the US are advised to capitalize on the elevated USD in the upcoming months and consider implementing longer-term hedges while favorable conditions persist.
