ROOM FOR A MODERATE CYCLICAL DECLINE IN THE DOLLAR OVER THE NEXT SIX TO 12 MONTHS

Economists at Charles Schwab expect the US Dollar to weaken moderately over the coming months, Nonetheless, the greenback is set to retain its dominance in the long run.

Fed nears the end of its rate hiking cycle while other central banks continue to tighten policy

“Over the next six to 12 months, we see room for a moderate cyclical decline in the Dollar. The main driver is likely to be a greater convergence of interest rates in the major economies as the US Federal Reserve nears the end of its rate hiking cycle while other central banks continue to tighten policy.” 

“The ECB and BoE appear on track to keep hiking rates due to persistently high inflation. The BoJ may loosen its yield curve control policy, allowing bond yields to move up, which would likely mean less demand for US Dollar-denominated assets by Japanese investors. We view these developments as the most significant risk to the Dollar's strength in 2023 and 2024.”

“Longer-term, movement to a multi-currency global economy is possible and could have benefits, particularly for emerging-market countries where moves in the Dollar can have big effects on economic growth. However, it would require some major structural changes in many regions. These changes take time and political will.”