ING Forecast For USD, JPY & GBP in 2023
Summary
- Investors are focusing on easing from the Federal Reserve.
- Fast support for the US banking system has caused the dollar to turn lower from distressed highs.
- Timing remains key for the sell-off of the dollar.
- The path to a weaker dollar will be a bumpy one.
- Banking stress or other challenges, such as a US debt ceiling crisis in the third quarter, could easily blow the dollar off course.
ING Forecast For USD, JPY & GBP in 2023
During a crisis, such as the 2008 Global Financial Crisis or the Covid-19 pandemic, the dollar tends to surge upwards due to the confidence crisis in inter-bank funding.
However, once authorities introduce measures to improve liquidity, the dollar tends to sell off as the market functioning appears to be solved and the Federal Reserve can cut.
The question now is whether the dollar can leave the banking crisis behind and focus on the forthcoming Federal Reserve easing cycle.
The path to a weaker dollar will be a bumpy one and could easily get blown off course should banking stress return or other challenges emerge, such as a US debt ceiling crisis in the third quarter.
ING assumes that conditions will remain tense in the second quarter and that the Federal Reserve still wants to tighten and we tend to agree with the European bank. It is plausible EUR/USD to continue bouncing around the 1.05-1.10 range.
In the second half of the year, the deceleration in US price and activity data, plus some Federal Reserve acknowledgement of these broad trends, should see the dollar break cleanly lower.
ING continues to target EUR/USD at 1.15 for year-end. They believe in a strong possibility of renewed Japanese yen outperformance on the crosses, especially if the Bank of Japan further adjusts its Yield Curve Control policy at its June meeting.
Elsewhere, they remain suspicious of sterling’s outperformance in March and expect it to come under pressure again – EUR/GBP to 0.90 – as the Bank of England moves closer to a formal pause.
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