Economists at HSBC anticipate two phases to the USD’s decline this year. The USD is going through the “chop” phase now. The second phase is categorised as the “flop” when the broader USD resumes weakening.

Choppiness, followed by broader weakness

“The USD is going through the ‘chop’ phase now, as the market reassesses its view on the Federal Reserve (Fed) and other risks that can temper the recent optimism in markets. Compared to the end of January.”

“Once the Fed actually stops hiking, alongside China’s recovery gaining ground, and perhaps the global economy shows signs of bottoming out, then the next phase to the USD decline should occur – the ‘flop’, which we expect to start in late 1Q/2Q23 and persist into 2024. In the ‘flop’ phase, we also think the behaviour of exchange rates could change and become less USD-centric.”