Beyond the Headlines | 22 Nov 2023

Dollar bears will be disappointed in 2024

Javier Corominas

Director of Global Macro Strategy

Our latest video for asset managers

The greenback is overvalued fundamentally, but 2024 will disappoint dollar bears. The pivot the market expects on the back of weaker data and a continued benign disinflation will take time to materialise.

In this week’s Beyond the Headlines, Javier Corominas, Director of Global Strategy, suggests the dollar will remain strong in 2024H1 against major cyclical currencies.

Click here to check out previous Beyond the Headlines episodes.

Hello, I’m Javier Corominas, Director of Global Macro Strategy here at Oxford Economics. There are tentative signs that our strong dollar view, which we’ve held since the spring, may be nearing exhaustion. Indeed, the recent pullback in yields, together with an increase in risk appetite after a very turbulent October, has meant that the dollar has given back some of the accrued gains against major crosses and selected EM currencies this year.

Is this the end of the dollar rally? Well, we think such calls are still premature. When it comes to EURUSD. We expect a terminal ECB policy rate at least 50 basis points below market expectations with the opposite in the case of the Fed. This monetary policy divergence versus market expectations means the greenback should hold on to this year’s gains and will curtail any potential upside in the EURUSD beyond 1.10.

But differentiation, as always, will be key. We think the stars are aligning for a potential yen outperformance versus the dollar, but also against typical currencies such as the Australian dollar and the Canadian dollar. The yen is properly a cheap hedge against a more severe downturn scenario next year. In the final analysis, BOJ has to choose between yields or currencies.

So far it has let the yen take the slack, but this will not always be so. In fact, we think the catalyst for yen strength next year will be the ongoing unraveling of YCC policy and lift off from negative rates, which we expect in April at the latest. Overall, therefore, we think the dollar will remain strong, but still 2024 will be a harder year for the dollar to outperform with key risks, including valuations, if anything, tilted to the downside.

We will be monitoring any potential data disappointments and the impact on potential lower US yields with very close attention.

Access the full research briefing here

Actionable, timely intelligence to sharpen your investment decisions

Weak economic growth over the past decade didn’t slow a stellar market – especially equity returns. But current economic realities – from US monetary tightening to China’s broken growth model – are likely to complicate results in the medium-term future.

To help investment professionals make decisions that maximise opportunities in today’s market, Oxford Economics offers in-depth coverage, and a robust macro and asset allocation framework. Our products and services help decision-makers cut through the noise – offering the intelligence needed to develop in-depth economic models, understand the industry landscape, evaluate investment possibilities, and make profitable decisions. ​ 

Related Services

Global Asset Manager Service

A complete solution for asset managers who require convenient access to high quality, market-relevant analysis on key global markets.

Find Out More
Global Macro Service

Monitor macro events and their potential impact.

Find Out More
various country flags
Global Economic Model

Our Global Economic Model provides a rigorous and consistent structure for forecasting and testing scenarios.

Find Out More
Global Industry Service

Gain insights into the impact of economic developments on industrial sectors.

Find Out More