Lombard Odier CIO Office Viewpoint - A bumpy path to US dollar weakening
Lombard Odier has released its latest CIO Office Viewpoint from its Global FX Strategist, Kiran Kowshik, and Chief Economist, Samy Chaar, discussing the outlook for the US dollar against major currencies including the euro, Japanese yen and Swiss franc in 2H2023.
Below are some of the key takeaways:
- Lombard Odier believes recent US dollar strength could prove short-lived, as US growth slows and hopes of interest rate cuts in 2023 fade
- Falling energy prices could reduce the US's terms of trade advantage and benefit current accounts in Japan and the eurozone, while tighter credit conditions could drive demand for haven currencies
- Lombard Odier expects the US dollar to weaken against the euro, Japanese yen and Swiss franc in 2H2023, and maintains its current US dollar underweight in portfolios
- Reducing US dollar dependence would require a major shift in international trade patterns. Recent FX reserve diversification away from the US dollar is unlikely to see it lose its dominant status anytime soon, nor drive markets.
As an unexpectedly resilient US economy keeps kicking expectations of a recession into the future, the dollar has been supported in recent months. However, the bank thinks that before the end of 2023 it will weaken against major currencies including the euro, Japanese yen and Swiss franc.
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