Macro Insights Weekly - A welcome dollar correction

27 November 2023


  • As markets have finally settled on the notion of the Fed tightening cycle peaking and likely rate cuts in 2H24, a period of USD weakness is likely in the making, in our view.
  • Speculators with short position on the USD got it wrong earlier this year.
  • Fed narrative of “higher for longer” in fact caused a dollar rebound in late summer.
  • But now, with inflation and growth cooling, we think there is room for USD weakness.
  • The key source of correction would likely be JPY, which we estimate as highly undervalued.
  • For EMs, USD softening would provide relief to a wide range of hard currency borrowers.