Generali Investment : “2024 is still set to be a difficult year for the USD”

2024 is still set to be a difficult year for the USD. But as we cautioned in our 2024 outlook, it would prove costly to write off the greenback to early. With “immaculate disinflation” becoming likelier, we have raised our US GDP forecast to 2.1% for 2024. As confirmed by Fed Chair Powell last week, the FOMC will err on the side of caution before starting to cut rates. This may sustain USD resilience near term even after almost 2% gains year-to-date. Tensions in the Middle East will also keep USD bid as a safe haven. 

Yet any further advances may prove good entry points for building USD hedges for the remainder of the year. Fed rate cuts and easing inflation point to lower rates uncertainty and an eroding US yield advantage over the spring – notably to the benefit of JPY (BoJ warming up to rate hike), more mutedly also of European currencies. The EUR may benefit from gradually stabilizing growth prospects in the euro area, even if gradual cuts by the ECB will keep a lid on any EUR bounce. We maintain a year-end target of 1.13 for the EUR/USD.