The end of the Fed’s hiking cycle is near, which will help to soften the USD.

For the USD to have a breakthrough, followed by renewed weakness, we believe a few other things are also needed: risk appetite holding up, less outperformance in US economic data versus the rest of the world, and a continued slowing of global inflation, in particular a decisive decline in US core inflation. Ideally, we have both the US economy moving to ‘soft landing’ and the rest of the world, especially China, seeing some positivity (versus expectations) in their growth outlook.

Should these conditions occur, the range-bound USD is set to end and its downtrend should resume, and this is our central case through the rest of this year and into 2024.