The USD extended its gains on a hawkish Fed but risk aversion has also supported the upward momentum. Economists at HSBC see a stronger USD, albeit on a data-dependent path.

USD to likely strengthen into year-end

“The Fed has lifted rates by 375 bps since March 2022 and signalled more rate hikes. We now expect two more 50 bps rate hikes, taking the federal funds target range up to 4.75-5.00%. We also acknowledge an upside risk to the policy rate amid the likely elevated US core inflation into next year, while the Fed is unlikely to deliver any rate cuts in 2023 or 2024.”

“We continue to believe the USD still has some upside into year-end, based on the three drivers of progressively hawkish Fed policy, slowing global growth, and risk aversion. Nonetheless, this path remains data-dependent and so this USD bounce will likely need inflation readings sufficient to warrant additional Fed hikes, while data that sustain concerns about recession risks may trigger risk aversion, benefitting the ‘safe haven’ USD.”