Sage Investment Club

jansucko/iStock via Getty Images Morgan Stanley strategists revised their forecast for the U.S. dollar lower, saying the greenback is losing its carry advantage as the global growth shows signs of buoyancy and macro and inflation uncertainty ebbs. The group, led by James K. Lord, now expects the U.S. Dollar Index (DXY) to end the year at 98, down from their prior forecast of 104. They see USD weakness most pronounced vs. the euro and risk-sensitive currencies. Emerging market currencies “should generally gain” alongside weaker USD. Total returns for most G10 currencies are expected to be positive relative to the U.S. dollar, except for the yen and the British pound. “We expect most Asia currencies to rally in 2023, front loaded in 1H, followed by more muted appreciation in 2H, due to the outperformance of the Chinese yuan (CNY) in 1H vs. 2H,” the Morgan Stanley strategists wrote. In Asia currencies, excluding Japan, they project a front-loaded rally led by the South Korean won, the Thai baht, and the Indonesian rupiah. In the past six months, DXY has dropped 5.2% compared with the Invesco CurrencyShares Euro Trust ETF’s (NYSEARCA:FXE) 7.5% gain and the WisdomTree Emerging Currency ETF’s (NYSEARCA:CEW) 7.6% increase as seen in this chart. Accordingly, the Invesco DB Dollar Index Bearish Fund (NYSEARCA:UDN) rose 5.2%. However, the World Bank isn’t seeing global buoyancy as it slashed its global growth forecast to 1.7% in 2023 from the 3% growth it expected six months ago. SA contributor Andrew Hecht in December pointed to technical resistance as the Dollar Index approached critical downside level.

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