The US dollar is likely to “consistently weaken” throughout 2024 as the Federal Reserve winds up its aggressive interest rate hiking agenda, said the CEO and founder of a leading independent financial advisory and fintech.
The bearish forecast from deVere Group chief executive Nigel Green came as it was reported that asset managers are selling the currency at the fastest pace in a year.
“The big dollar sell-off is on. We expect this trend to increase in momentum throughout 2024 as investors increasingly believe that the Fed’s most aggressive interest rate hiking campaign in a generation is winding down,” said Green.
“The dollar traditionally performs well at the start of the year, but it is likely that it will consistently weaken during the course of next year as the Fed moves to ease its grip on rates.
“With the battle against inflation being won, it can be expected that the central bank will roll out multiple rate cuts in 2024, prompting investors to think that holding so many dollars is not as necessary.”
The expectation is that lower interest rates will reduce the attractiveness of dollar-denominated assets. As interest rates in the US decline, the interest rate differential between the dollar and other currencies narrows, diminishing the yield advantage that has historically drawn investors to the greenback.
Furthermore, the possibility of multiple rate cuts by the Fed is prompting investors to seek higher-yielding assets elsewhere, contributing to the accelerated exit from the dollar.
“Alternative investments in currencies from regions with more favourable interest rate outlooks become increasingly appealing as the interest rate differentials shift in their favour,” said Green, as the reverberations of this dollar sell-off extend beyond the borders of the United States.
“A weakened dollar has implications for global trade, as a depreciating currency can boost US exports, but may also lead to tensions with trading partners,” the deVere Group CEO explained.
“In addition, emerging market economies, which often carry significant levels of dollar-denominated debt, will experience relief as the burden of servicing this debt is alleviated with a weaker dollar.”
Green concluded that, “as investors bet big on the Fed cutting rates, 2024 could be dubbed ‘the year of the dollar dive’.”