The USD has already entered a prolonged period of depreciation — Wells Fargo

The USD has already embarked on a prolonged period of depreciation that could last until 2024, they warn Wells Fargo analysts. They note that the relative performance of economic growth and the outlook for monetary policy have become less favorable for the US dollar.

The strength of the dollar is no longer expected at the beginning of the year

“The US dollar has embarked on a prolonged period of depreciation. Relative growth and monetary policy fundamentals have become less supportive of the dollar. We expect the depreciation of the US dollar to be gradual in early 2023 as US falls into recession during the second half of this year, but the Federal Reserve is hesitant to lower interest rates prematurely.”

“We expect the depreciation of the dollar to accelerate in 2024 as even as the US economy starts to stabilize, we think the Fed will start cutting interest rates quite aggressively starting early next year. At current levels, we expect the Fed’s trade-weighted dollar index against advanced foreign economies to soften to 3% by the end of 2023, and a cumulative 8.5% by the end of 2024.”