Although the Federal Reserve’s speculated monetary policy in 2024 could ease economic conditions, investors are cautious of whether 2024’s interest rate moves could weaken the US dollar or not.
Yahoo Finance Senior Business Reporter Ines Ferré joins the Live show to discuss Wall Street banks’ predictions about the interplay between world economies and the US dollar next year.
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Video Transcript
BRAD SMITH: So rate cuts appear to be on the way, even if we don’t know exactly when. And that should weigh on the US dollar, but some investment banks are warning of strength for the greenback in 2024. Yahoo Finance’s Ines Ferre has been digging into this one and has the details for us. Hey Ines.
INES FERRE: Hey Brad. Yeah, we have to take this into the bigger context of what happened this week. We saw this rally this week on the heels of what the market anticipates is the Fed pivot, that the Fed will be cutting rates next year. And if we take a look at our Wi-Fi interactive, take a look at what happened to the DXY.
This is the US dollar index against a basket of currencies, that’s including the euro, the Japanese yen, the British pound. And here you see the dollar coming down after the Fed– after the market says, OK, the Fed’s going to cut next year. But Fidelity, JP Morgan, HSBC, Morgan Stanley analysts are saying, hold on a second, in 2024, you will likely see the dollar rise as the US economy outperforms.
So what these analysts are saying is that compared to the rest of the world, the US economy will outperform other economies and emerging markets will be struggling with these higher for longer interest rates. And this is emerging markets and also Europe and they will go into a recession. So if the Fed cuts interest rates next year, what these analysts are saying is you will probably be seeing other countries that will have to reduce sooner.
That is going to create a wide rate differential. And when that happens, you will see a flight to safety to the dollar. So only if you see a soft landing globally will you get a bear case for the dollar.
Now, I’m going to pull up a two-year chart here, so you can see that last year, remember, when the markets were going down, the US dollar was going up. And here we go, as the markets were going up this year, the US dollar was going down. And here you see here, this leg with the US dollar going down now.
Bloomberg has a survey out that says that they have analysts that have consensus across 10 countries that they think that the dollar will be weaker in 2024. Currencies in other countries and the US dollar index that I was just talking about, that most of those currencies will rise. But these contrarians from, again, Fidelity, JP Morgan, Morgan Stanley are saying, what you’re missing here is that there will be a flight to safety as other countries weaken.
And you’ve got Fidelity’s money manager that says that Europe and the UK are going to go into a recession, that the dollar always gets a bid when that happens. You also have Morgan Stanley analysts that are predicting that the US dollar index will reach 111 by next spring. Right now, it’s at 102. That’s an 8% rise, guys.
SEANA SMITH: And that would certainly be a huge headwind potentially here for many of those multinational companies. Ines Ferre, great stuff. Thanks so much for breaking that down.
