Fear of the unknown continues to drive FX markets seeing the US dollar jump to yet another multi-decade high. However, economists at Westpac still expect to see a marked decline in the US dollar.

There is a much greater chance of disappointment for sterling than euro

“While the starting point for the US dollar is much higher this month than in June, we remain of the view that at end-2022 and end-2023, DXY is likely to be back near 101 and 95 respectively.”

“Driving the US dollar depreciation over the period will be the euro which is forecast to rise from 1.02 currently to 1.09 end-2022 and 1.15 end-2023.” 

“Sterling is expected to contribute similarly, with GBP/USD forecast to rise from 1.20 to 1.26 end-2022 and 1.34 end-2023 – although we must note that there is a much greater chance of disappointment for sterling than euro given the UK’s current political and Brexit-related concerns.”

“Albeit smaller in magnitude than for euro and sterling, the anticipated rise in Canada’s dollar is also significant for DXY, with USD/CAD forecast to fall from 1.30 to 1.25, a level that is expected to be broadly maintained until March 2024.”