Currency strategists at ING foresee a gloomy future for the US dollar in 2024. Although bullish sentiment may prevail in the market, the US currency is likely to take a pause.
The US dollar will slow down in favor of other currencies, which are underestimated at the moment.
"So bringing it all together, we think 2024 will be a year in which currencies and the rest of the world can breathe after being dominated by the strong dollar trend for so long," Chris Turner, Global Head of Markets, said. In this light, such undervalued currencies as the Australian dollar and the Norwegian krone will have the most to gain. Analysts also recommend paying attention to “growth” currencies, including the Swedish krona.
Notably, in the third quarter of 2023, a powerful bullish trend spurred a 4.9% upswing in the greenback. The surge could be explained by high interest rates and elevated Treasury yields.
However, there are some pitfalls. ING is sure that further monetary policy tightening may force the Federal Reserve to consider a key rate cut next year. Such a measure could be needed to fight against galloping inflation and the highest employment rate.
“A coming US recession will force the Federal Reserve to slash rates by 150 basis points in 2024's second quarter,” analysts predict. Under such conditions, US assets will become less attractive. Lower rates could also “bring down yields on short-dated US Treasuries.” This will cap the greenback’s rise, thus boosting commodities.