HSBC has revised its view on the USD, predicting more upside for the greenback going into 2024. Previously, the bank had forecasted a winding down of cyclical weakness in European currencies, but this has materialized faster than anticipated. HSBC cites looming tightening by major central banks and resilient U.S. economic data as contributing factors to a stronger USD.

Key Points:

• Revised Stance: HSBC shifts its view to anticipate more strength in the USD through to 2024.

• European Weakness: Cyclical weaknesses in European currencies have ended sooner than expected, contributing to a bullish outlook for the USD.

• Central Bank Actions: Tightening policies from major central banks worldwide are likely to increasingly impact currencies, further supporting the USD's strong position.

• Resilient US Data: Despite signs that the narrative of 'US exceptionalism' may be waning, HSBC argues that this won't necessarily be a headwind for the USD, particularly given the broader implications for global growth.

• Interest Rates: Even though U.S. yields are expected to fall, the bank suggests that further rate cuts could be discounted more in other economies, thereby supporting the USD.

Trading Recommendations:

• Long USD: Investors might consider longer-term bullish positions on the USD based on HSBC's revised outlook.

Implications:

For Traders:

• Long-Term Perspective: If HSBC's revised forecast holds, traders may want to establish or maintain long positions in the USD for a more extended period.

• Risk Management: Traders should be aware of the shifting landscape around central bank policies and how these could impact the USD.

For Policymakers:

• Global Economic Impact: Policymakers should keep an eye on how central bank tightening globally could affect currency dynamics and, by extension, global economic stability.

Conclusion:

HSBC's revised view suggests that the USD is poised for more strength going into 2024, influenced by a faster-than-expected end to European cyclical weakness and central bank tightening worldwide. Despite expectations of falling U.S. yields, HSBC argues that the broader global growth outlook and the relative impact of rate cuts in other economies could still support the USD.