The end of the trading year is a good time to read what market experts believe the markets will do in the upcoming year. Deutsche Bank research is famous for its forecasts, and it recently published an interview with George Saravelos, the head of its FX Research department.
George shared his view on many currencies, but the main ideas are that the US dollar has peaked and that the Deutsche Bank remains pessimistic about the British pound.
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US dollar peaked in 2022
The US dollar has strengthened for nearly two years straight, as reflected by the dollar index. The index mainly reflected the interest rate differential between the Federal Reserve and other central banks in the world, and it has been in a steep drop since October.
After climbing as high as 0.96 against the euro, the dollar reversed course. Sure enough, the EUR/USD exchange rate is still negative on the year, but Deutsche Bank believes that the dollar has peaked and it will gradually weaken in 2023.
Inflation is seen as the main driver of the dollar’s weakness. Saravelos believes that the quicker US inflation falls, the faster the US dollar’s unwind will be.
Deutsche Bank remains pessimistic about the British pound
Deutsche Bank’s interesting point is that the British pound will underperform in 2023. One of the reasons to be pessimistic about the pound is the negative real rate and the need for large external funding.
If we add to the mix the energy crisis and Brexit, then the pound looks vulnerable. In 2022, the British pound fell against the dollar, and the GBP/USD exchange rate bounced in October as the dollar peaked.
