U.S. dollar
- The U.S. Dollar Index (DXY) strengthened during the first quarter. Signs of an economic soft landing coupled with a change in timing around Federal Reserve (Fed) rate cuts in 2024 fostered the dollar’s increase. Our bias has shifted toward continued dollar strength into year-end 2024 as we believe these factors will remain.
- We expect the DXY to range-trade near current levels or rise slightly through year-end 2024, supported by continued economic strength in the U.S. and stubbornly high interest rate differentials.
Developed currencies
- We believe continuing decreases in market optimism of a significant Fed pivot in 2024 should aid the dollar’s strength as higher interest rate differentials remain. Therefore, Fed policy actions in comparison to other major central banks over the next few months will remain a key point for the dollar’s near-term levels.
- We expect a mild decline in the euro throughout 2024 and notable yen depreciation.
Emerging currencies
- Emerging market (EM) currencies mostly underperformed against the U.S. dollar during the first quarter. The Chinese yuan continued to struggle causing most currencies elsewhere in Asia to follow the yuan’s decline.
- We continue to believe that sustained stronger performance in EM currencies may not be seen until 2024’s recovery cycle, with rates dropping in developed economies.