USD set for a cheery holiday season, 2023 to be a more challenging –HSBC

Economists at HSBC look for the US Dollar to strengthen into the holiday season. However, 2023 is likely to be a more challenging year for the greenback.

USD cheery, then bleary

“While we expect a weaker USD over the medium-term, the sharp recent decline in the currency appears to be overdone and the short-term risks are skewed towards a correction stronger in the USD into year-end 2022.” 

“For the 13-14 December Federal Open Market Committee (FOMC) meeting it will  be interesting to see where the ‘dots’ rate projections for year-end 2023 land. If it moves much above 5.00%, it might see further USD strength, given the market is eyeing a terminal rate around 4.60%. However, the FX market remains dominated by risk appetite, rather than rates.” 

“Data will remain key to risk appetite and the USD with US inflation top of the list. Another lower-than-expected reading for US CPI (due 13 December) could provide further impetus to the ‘risk on’ USD weakness, for example, contrary to our view.”