Credit Agricole has outlined five key points in their foreign exchange forecasts, primarily focusing on the performance of the U.S. dollar (USD) against the G10 currencies. Their outlook suggests a potential moderation in the USD's underperformance towards the end of 2023 and the first half of 2024, with a likelihood for renewed strength in the second half of 2024.

Key Highlights:

1. Moderate USD Underperformance: Credit Agricole expects the USD to moderately underperform against G10 currencies in the fourth quarter of 2023 and the first half of 2024.

2. Historic Context: Their forecast is in line with how the USD has historically behaved after Federal Reserve tightening cycles, easing cycles, and the early stages of U.S. recessions.

3. U.S. Recession Risks: A U.S. recession between Q4 2023 and Q1 2024 could actually bolster the USD, especially if the Federal Reserve holds back from rate cuts.

4. Potential Forecast Upgrades: Given these factors, Credit Agricole is contemplating an upgrade to their near-term USD outlook in the next round of forecast updates.

5. Fed Rate Cuts: Even if the USD gains in the near term, their analysis suggests it could underperform in the first half of 2024, especially if the Fed starts cutting rates in Q2 2024 in response to easing inflation and economic slowdown.

Implications:

For Forex Traders:

• Currency Pair Selection: If Credit Agricole's outlook proves accurate, traders might consider positions that capitalize on the USD's expected underperformance against the G10 in Q4 2023 and H1 2024.

For Investors:

• Asset Allocation: Given the USD's expected behavior, global investors may need to adjust their currency hedges or asset allocations accordingly.

For Economists:

• Policy Implications: The outlook ties in closely with potential shifts in Federal Reserve policy, providing a key variable for economists to watch in the coming months.

Conclusion:

Credit Agricole’s foreign exchange forecasts present a nuanced view of the USD, predicting a phase of moderate underperformance followed by a potential revival. Investors and traders should pay attention to these trends, especially in light of how they correlate with Federal Reserve actions and the broader economic landscape