© Reuters. FILE PHOTO: One hundred US dollar bills are seen in this photo taken in Seoul February 7, 2011. REUTERS/Lee Jae-Won/File Photo
NEW YORK (Reuters) – The U.S. dollar may have already seen its best performance for the rest of the year on growing evidence of slowing inflation and a weak labor market in the world’s largest economy. Barclays (LON:) is Deutsche Bank (ETR 🙂 wrote in a research note on Wednesday.
Apart from domestic factors, Barclays said the improvement in European electricity and demand and the prospect of China reopening are reasons enough to remove some of the risks that have supported the dollar this year.
Barclays has extended the decline of the dollar to the fourth quarter this year, from what it predicted in the first quarter of 2023.
Since the end of September, it is down about 8%.
The Bank of England revised its forecast for the end of 2022 for the euro/dollar to $1.03, from its previous forecast of $0.97.
“The risk to the EUR is made up of so much gas and oil that the recession is no longer a threat to hamper production,” Barclays said, adding that peace or a ceasefire in the Russia-Ukraine conflict would be more likely. encourage.
Deutsche, on the other hand, expects the euro to end the year at $1.05.
That said, the German bank still expects a tough dollar market, with one major challenge: the extent and speed of US deflation, or overall deflation.
“For the dollar’s appreciation to start, we really need more confidence that US inflation – and by extension the Fed Funds rate – is falling,” wrote Deutsche.
Deutsche is following the trend of US yields to determine where the dollar is headed. The bank said the US 5/30-year yield curve would need to stabilize sharply to trigger the dollar’s decline.
The trend has increased since the end of September, the spread of which is at 4.4 basis points.