The dollar traded steady, failing to benefit much from Friday’s jobs data, and looks at risk of falling as investors “remain confident” that the Fed might cut interest rates in March, UniCredit Research said.
Markets price too many interest-rate cuts for this year, but any adjustment is likely to be stronger for ECB and BOE expectations than it is for the Fed, UniCredit added.
“Such a scenario is likely to help EUR/USD and GBP/USD, although we do not see big upside potential for these two pairs much above 1.10 and 1.28, respectively,” UniCredit said.
Ravenscroft said the dollar should trend lower over 2024, while the Japanese yen strengthens.
Dollar weakness is expected as the economy heads for a soft patch and as the Fed pivots towards cutting interest rates, it added.
The yen could potentially strengthen “materially” if the Bank of Japan ends its yield-curve control policy as expected, Ravenscroft added.
The dominant theme for currency markets this year will be positioning for a shift to a global cycle of interest-rate cuts, NatWest Markets said.
It thinks markets have priced in too few near-term rate cuts by the European Central Bank, and too many for the Fed and the Bank of England.
“Markets grabbed this [theme of expected rate cuts] with too much enthusiasm in December and there’s potential for this to continue to be unwound as the market’s rallying cry becomes ‘too much too soon’.”