USD forecast: US Dollar index (DXY) slides in risk-off market sentiment

Published: 26.03.2023 Related countries:  U.S.A. U.S.A.

Dollar strength is waning following its peak, though volatility will remain elevated in 2023.However, although the dollar is likely to decline further in 2023, it is expected that exchange rate volatility will remain elevated.

The ICE US Dollar Index (DXY) – a measure of the currency’s strength against a basket of rival currencies stood at the 103 mark as of 13 March 2023, down over 1% since August 2022, but still remains 4% higher compared to the same time last year.

An aggressive monetary contraction policy implemented by the US Federal Reserve (Fed) culminated in a 50-basis-point (bp) interest rate hike in December 2022. The Fed’s fight against inflation, and the resultant effect on the US bond market, have encouraged both the upswings and the latest decline.

The USD’s status as a safe-haven currency was boosted by global economic slowdown fears and expectations of a hawkish Fed over the course of last year. However, slowing rates of inflation, a policy pivot by the Fed, and fears of a potential recession in the US have pulled the US dollar off its highs.

Federal Reserve Chairman Jerome Powell indicated on Tuesday 7 March that interest rates are likely to head higher than central bank policymakers had expected.


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