Global events are conspiring to send the dollar a lot higher. The 2022 dollar boom may well turn into a bust in 2023, but economists at ING are a long way from calling a top in the dollar now.

Dollar booming in 2022, bust in '23?

“The Federal Reserve looks set to embark on an aggressive tightening cycle this year to stamp out inflation. War in Europe and the risk of an abrupt cut-off in Russian gas are damaging European growth prospects and local currencies, while Asia is dealing with its own growth problems and the likes of both China and Japan are still in monetary easing mode. It is hard to see this environment changing in the next six months, meaning that this dollar boom looks set to continue.”

“The Achilles Heel of this dollar rally is that the strong dollar and strong domestic demand are sucking in imports and widening the trade deficit. One developing narrative is that rather like the 1980s, Fed efforts to stamp out inflation send the dollar through the roof and the 2022 dollar boom turns into the 2023 dollar bust if, as we suspect, the Fed might be cutting rates by the end of '23. For now, the dollar boom will very much be the story.”

“Closes above 104 DXY warn that this dollar rally goes into hyper-drive.”