USD strength has been a very consistent story over the past two years. However, economists at HSBC note that the main tailwind for the Dollar is quickly falling away. 

Upgrade of EUR and GBP to a neutral view

“USD benefited from the leadership of the Fed in setting the pace of monetary policy tightening and an attractive rate pickup compared to many other G10 currencies. But as we get closer to peak rate levels, we think those rate differentials are unlikely to widen further, and the gap may even narrow with some countries. As a result, the main tailwind for USD is fading fast.”

“USD will still get some support, however, from weakening global economic growth, relative economic resilience in the US and mixed-to-weak risk appetite.”

“We recently downgraded USD to neutral; upgraded EUR and GBP to a neutral view; and JPY and SGD to a bullish view.”