The U.S. dollar rose more than 7.5% in 2022, according to the Wall Street Journal dollar index. But some think the dollar’s lofty rally might be over. So what’s going on and what can we expect in 2023?
After rallying for most of 2022, the dollar’s value relative to other currencies has dipped over the past few months. That’s probably due to the prospect of the U.S. economy weakening, said Eswar Prasad, a trade policy professor at Cornell University.
“So, the fact that the U.S. might do a little worse than earlier anticipated, Europe and Japan might do a little better than earlier anticipated, is enough to drive the value of the dollar down,” he said.
On top of that, the Federal Reserve has indicated it might be relaxing the rate at which it’s increasing interest rates.
“They see a turning of the inflation problem in the U.S.,” said Dean Baker, senior economist at the Center for Economic and Policy Research in Washington, D.C. “But there’s less evidence of that in Europe and England. So those banks at this point seem much more hawkish than the Fed.”
If there’s any foreseeable end to the conflict in Ukraine, Baker added that that would bolster the euro’s value significantly — which could relatively decrease the dollar’s value even further.
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