Many economists note that it is almost impossible to predict the US dollar’s future in the short term. However, they are sure that the current depreciation of the greenback was triggered by the Fed’s policy. Nevertheless, currency strategists still try to figure out what to expect from the US currency by the end of 2023. This week, the US dollar has declined against its counterparts, slumping for the second quarter in a row. Notably, the currency lost 7.7% in Q4 of last year and 1.2% in Q1 of 2023. Economists say that the US Federal Reserve’s policy has led to the national currency’s weakening. In late 2022 and early 2023, the greenback significantly sagged amid expectations of a more dovish monetary policy. As a result, the global appetite for risk increased sharply. In February, the US dollar regained some ground due to the tougher regulatory policy. Last month, market participants' expectations of a possible monetary policy easing intensified again amid the crippling US banking sector. In the end, the US currency lost its strength. Thus, USD's performance is entirely dependent on the Fed. Today, the US currency keeps its status as the global reserve currency in which the lion’s share of international payments is made. Analyzing the greenback, economists consider what market participants expect from the regulator. Currently, traders and investors are pricing in the rate increase to 5%-5.25%, scheduled for May. After that, the Fed is expected to take a pause in rate hikes. Analysts draw attention to the correlation between the interest rate and the USD price. They note that the higher the rate, the lower the investment attractiveness of assets. On the contrary, lower rates increase the inflow of capital and the appreciation of the currency. If the US monetary policy becomes tighter, the greenback is likely to continue to plunge. Against this background, the risk of a recession and a collapse of USD is increasing. However, the US authorities are unlikely to take such a step, economists believe. By the end of 2023, the Fed's monetary policy may become softer and the value of USD can stabilize. However, if the Fed increases interest rates, investments in actual manufacturing will be unprofitable. As a result, investors will have to abandon these investments and switch to more profitable financial instruments. Against this backdrop, the greenback may rise steadily, analysts concluded.
