Bloomberg recently wrote a helpul piece summarising reasons why professional investors think the USD may be weaker going forward. This is due to the Fed reaching the peak in their rate cycle, the strength of the yuan and the JPY, as well as potential de-dollarization trend that could accelerate over the next decade.
The Fed peak?
The Fed meet on May 03 and many analysts see the Fed as making one more rate hike before pausing. However, 40% of the 331 correspondents surveyed expect the Fed to start loosening interest rates the year. 87% of those surveyed see the fed cutting interest rates to 3% or below. So, if theses professional opinions are right the USD could see a flush lower if the Fed pull back from a steeper rate path.
Yen and Yuan appreciation?
Speculation that the BoJ will abandon it’s yield curve control policy has so far been resisted by the BoJ’s governor, Ueda. However, if Ueda does act, and moves away from the yield control policy, then the JPY will strengthen rapidly.
Professional investors are also expecting the Yuan to gain as China’s economy wakes up.
Is De-dollarization really ahead?
The move away from the USD has long been mooted as a possibility and the majority of those surveyed by Bloomberg now se the dollar representing less than half of global FX reserves within 10 years. See the result of that Bloomberg survey here:
In reality the near term direction of the USD is most likely to come from if/when the Fed make a policy shift. If the Fed feel they have to keep hiking to contain inflation then expect near term USD strength. The BoJ meet this week, so a surprise shift in policy would pressure the USD as the JPY would sharply gain (watch the USDJPY)
