Credit Agricole CIB Research sees a scope for the USD to regain some ground into year-end.
"The markets have been hoping that evidence of peak US inflation will lead to peak Fed hawkishness as soon as its December policy meeting. The seemingly extreme market pessimism about the US economic outlook, reflected in the fact that the UST yield curve has hit its most inverted level since the early 1980s (using UST 2s10s), has likely further added conviction to the ‘dovish’ Fed pivot view and FX investors have been positioning accordingly in recent weeks by turning more bearish the USD," CACIB notes.
"That said, we also note that the USD index tended to do well during UST yield curve inversions in the past. In addition, predicting the timing of the ‘twin’ inflation and Fed peaks has proven very difficult so far this year and next week will be no exception....With peak US inflation and the peak Fed terminal rate still largely a 'moving target' for FX investors, we think that risk assets could suffer and the USD benefit," CACIB adds.