Prospects for the USD have taken a turn for the worse. USD outlook is challenged by rate spreads, economists at Scotiabank report.

USD will be subject to sporadic gains

“A further, significant narrowing in spreads may take a while; we don’t think the Fed is liable to cut rates any time soon but we do look for rates in the Eurozone to push a bit higher still and for rates in Europe generally to remain higher for longer in 2024. This will exert more downward pressure on the USD in the longer run.” 

“The USD will be subject to sporadic gains, driven by data or weak risk appetite in the next few weeks but a sustained move lower appears to be developing which should curtail USD strength and provide investors with better or renewed opportunities to fade during these phases of short term strength.”