Synopsis:

SocGen forecasts the USD to peak in Q4 2024 before stabilizing at elevated levels over the next year, similar to 2016’s pattern. With US growth projected to outpace most major economies and a currency-friendly fiscal/monetary policy mix, the USD is expected to maintain its high valuation. However, further appreciation is unlikely unless US policies shift to a more accommodative stance, which could ultimately lead to a gradual decline from historically high levels.

Key Points:

• Q4 Peak and High Range Stability: The USD is expected to peak in Q4 2024, sustaining a high range through 2025, with the Dollar Index averaging around 103.6, reflecting resilient demand and economic fundamentals.

• US Economic Outperformance: US growth, projected at 2.8% in 2024 and a moderate slowdown in 2025, continues to outpace most major economies, supporting USD strength.

• Currency-Friendly Policy Mix: The combination of strong growth and relatively high US rates has attracted investment, with the US importing investment surpluses from economies like Germany, Japan, and China. This has bolstered the USD’s high valuation.

• Long-Term Outlook: A significant USD decline may occur only if US fiscal and monetary policy turns more accommodative. However, any depreciation would start from a historically elevated base, as global confidence in the USD remains intact.

Conclusion:

SocGen expects the USD to remain strong in a high range following a Q4 2024 peak, underpinned by US economic resilience and favorable policy mix. Substantial dollar depreciation is unlikely unless US policy shifts significantly toward accommodation, making the USD’s long-term high valuation a challenging trend to reverse.