SIGNIFICANT RISK OF A NEAR-TERM BOUNCE IN USD OVER THE NEXT MONTH – STANDARD CHARTERED18 January 2023, 12:43

Economists at Standard Chartered expect a near-term bounce in the US Dollar over the next month as the Fed continues to tighten.

US government bond yields to rise towards 4%

“While technicals are not yet at extremely oversold levels, USD has declined nearly 9% since its recent peak in late 2022. History suggests markets or currencies rarely witness such large moves without being followed by a period of consolidation.”

“Over the next 1-3 months, we expect US government bond yields to rise towards 4% as we expect another 75 bps of Fed rate hikes in H1 23, which should be supportive for the USD.”

“China’s rapid reopening could lead to a slower-than-forecast decline in inflation. This could lead to a market reassessment of current expectations of a relatively rapid Fed easing in 2023, which could drive flows into the safe-haven USD, at least temporarily.”