Having reached a new cycle (and multi-decade) high of 114.1 in late September, the US Dollar Index (DXY) has since been locked in a relatively tight trading range between 110 and 113. Economists at Westpac expect that the US Dollar peak is behind us.

The weight of reality is hitting the USD

“Expectations and risks related to inflation continue to dictate moves within the range; although, over the past month, participants have been showing greater concern over the consequences of tight policy for the economy, and consequently a growing belief that the peak in rates is nigh. Available activity data certainly argues for this being the case.”

“Although the direction of travel for the US economy, and by association consumer inflation, is clear, markets are still apprehensive to step out and take risk, particularly while the FOMC holds onto its hawkish stance, evinced again by Chair Powell this week. Into year-end, we expect this to remain the case. 2023 is likely to be very different, however.”

“From 113, we look for DXY to fall to 103 by end-2023 and 96 end-2024 – declines of 9% and 15% from spot – with Euro and Sterling key to the result.”