The dollar will start plummeting in 2023 as the US economy tips into a recession and the Federal Reserve is forced to cut interest rates, Wells Fargo analysts have predicted.
The greenback has soared this year as the Fed increased rates harder than other central banks.
Wells Fargo economists told clients in a note Tuesday that they expect the dollar to continue to surge in 2022. They believe the Fed will hike interest rates by 75 basis points for the third time in a row in September, further boosting the US currency.
However, they think the dollar could peak in the fourth quarter before entering a period of “cyclical decline” against other global currencies.
“As those rate cuts are signaled, priced and implemented, we expect the US dollar to trend lower over the course of the 2023,” the bank’s economists, led by Nick Bennebroek, said.
They see the gap between the level of interest rates in the US and abroad narrowing as the Fed pulls back.
“With interest rate differentials swinging back in favor of foreign currencies next year, the greenback should enter a period of cyclical decline against most G10 currencies as well as certain emerging currencies,” they said.