The US dollar reduces losses, correction or a new trend?
2022.11.16 11:50
The US dollar reduces losses, correction or a new trend?
Budrigannews.com – The US dollar may have reached its highest level this year, Barclays and Deutsche Bank wrote in a research note, given growing evidence of a slowdown in inflation and weakening labor markets in the world’s largest economy.
In addition to internal factors, Barclays said improving energy supply and demand conditions in Europe and expectations of a resumption in China were good reasons to remove some of the risk premiums that have supported the dollar this year.
Barclays is bringing forward the dollar’s fall from its previous forecast for Q1 to Q4 this year in 2023.
Since the end of the month, it has fallen by about 8%.
The Bank of England also revised its euro/dollar forecast for the end of 2022 to 1.03 from its previous estimate of 0.97.
“The bullish risk against the euro is that the potential for shortages is no longer a risk factor limiting production, as gas and oil supplies have improved sufficiently,” Barclays said, adding that peace and a ceasefire in the Russian-Ukrainian war will be an additional boost.
Germany, meanwhile, expects the euro to reach $1.05 by the end of the year.
That said, the German bank noted that it still expects a volatile market for the dollar with a major problem – the degree and rate of disinflation in the United States, or a general slowdown in the overall increase in prices.
“In order for a big downward trend of the dollar to begin, we really need confidence that US inflation, and therefore Fed prices, are persistently falling,” he said.
Germany follows the shape of the US yield curve to determine where the dollar is heading. The bank said that the 5-year/30-year US yield curve should be positively steeper to start a downtrend for the big dollar.
Its curve has been steeper since the end of the fifth month and is now expanding to 4.4 basis points.
