FX: What next for the dollar?
While no one is willing to bet the farm on anything other than dollar depreciation in 2023, mixed messages from the Fed, and economic and political uncertainty elsewhere mean the greenback could yet defy expectations.
October’s meeting of finance ministers and central bankers in Washington took place in similar circumstances to the 1985 Plaza Accord. Japan, West Germany, France and the UK – at the time the world’s largest economies after the US and the Soviet Union – had seen their currencies depreciate by around 50% against the dollar during the first half of the 1980s on the back of high US interest rates and a strong economy.
In the weeks leading up to the G20 gathering in 2022, sterling had hit its lowest level against the dollar since the mid-1980s and the yen had not been as weak since the late 1990s.
The Fed is nearing the end of its rate hike cycle and while global growth is slowing, it could bottom in the coming months
Any optimism that the October get-together of monetary policy-setters would result in the US sticking a pin in the dollar bubble was short-lived. But the events of the past few months offer the prospect of the world’s dominant reserve currency continuing its recent correction.