USD strength to persist throughout next year as Fed rate cuts not expected before 2024 – Rabobank

The US Dollar Index is trading at fresh multi-decade highs near 110.80. Economists at Rabobank expec the greenback to remain on a strong foot.

USD strength is based on a combination of Fed hawkishness and risk aversion

“It has been our view for some time that USD strength is set to persist for some time, at least until the early months of next year. Given that we are no longer forecasting Fed rate cuts before 2024, there is now a strong argument that USD strength may persist for far longer.”

“USD strength is based on a combination of Fed hawkishness and risk aversion. The latter has drawn strength form concerns about the outlook for global growth. The headwinds for growth include risks of a US hard landing, slow growth in China, energy related recession in the Eurozone and widespread reduction in purchasing power due to inflation.”

“Currency weakness vs. the USD has been a contributary factor in the decisions of many central banks to announce aggressive rate rises this year. While rate hikes should provide some protection against currency weakness, they may also undermine growth prospects further and thus at some juncture they risk feeding safe haven USD demand further.”