Like every year, analysts from different consulting firms and banks around the world begin to publish their first forecasts for 2024. ING (Internationale Nederlanden Groep), a financial institution of Dutch origin, announced that important changes are coming next year and assured that the most affected will be the dollar.
For ING, 2024 will be the year the dollar “finally goes down.” This is revealed by the bank’s experts in their outlook report for next year, in which they explain that, from their point of view, “the currencies with the best performance will be those that are most undervalued”. Thus, they expect a “step forward” from Australian dollar and the The Norwegian crown.
“We believe that the dollar should suffer a cyclical slowdown next year. Barring huge and unexpected risk premiums emerging in the monetary space, the dominant trend should be for US growth to converge with the weak levels seen in Europe and Asia, for the Federal Reserve to embark on an easing cycle, and for the dollar falls between 5% and 10%“they say.
That vision, these experts comment, “really depends on the Federal Reserve is capable of cutting rates and for a clear and pronounced upward trend to develop in the yield curve in the United States.” ING also points out that in this next stage of the economic cycle “Commodity-linked currencies will outperform”.
“The main threats to our view of the dollar are the enduring economic strength of the United States or another identity crisis in the eurozone.” And, remember, the EUR/USD “failed to recover in 2001, despite the fact that the Federal Reserve cut almost 500 basis points.”
Currencies: which ones have the most possibilities in 2024
At ING they believe that Australian and Norwegian currencies “will perform better” next year. “Fighting the dollar’s bullish trend has been a futile exercise for most of this year,” and now currencies “set to challenge the dollar will need some help.”
The bank’s analysts explain that both the Australian dollar and the Norwegian krone “accumulate undervaluation in their arsenal”, and in fact they are “the most undervalued currencies” in the medium term, where divergence from better export prices is the central story. The higher rate environment in the United States “has prevented these currencies from aligning with the rebound in commodity prices seen in the second half of this year,” something that could change in 2024.
Faced with the better performance that ING expects for the Australian dollar and the Norwegian krone, European currencies will not do so well in the next twelve months. “Unlike commodity currencies, neither the euro nor the pound are particularly undervalued against the dollar,” they comment.
That is why they believe that the history of the dollar “will be enough to push EUR/USD up in 2024 (our end-of-year target is 1.15)but the movements should be relatively modest.” In any case, they consider that the EUR/USD “will try to recover while the eurozone is in recession.”
And they point out that it will also face the challenge of a European Central Bank “increasingly moderate”, if they are right and the ECB undertakes the first interest rate cut in June.
Refering to poundFrom ING they emphasize that the flexibility cycle of 100 basis points that they expect the Bank of England in 2024 “will create obstacles for GBP/USD”. “We do not expect the UK elections to demand a large risk premium for the pound, but we doubt they will not provide a tailwind either,” they conclude.
Source: Ambito
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