Bottom line

  • Following a spectacular year for the USD, in which it appreciated to two-decade highs due to Fed rate hikes, Europe’s energy crisis, the Russia-Ukraine war, and China’s lockdown persistence, the tides appear to be turning against it. Its overvaluation is sitting at an unsustainable 20%, and although this does not mean it will retrace the full extent of that overvaluation, it does suggest that some degree of correction is inevitable.

  • The most likely catalyst for a USD correction in 2023 is a Fed pivot to looser monetary policy. The worst of the ongoing inflationary episode is in the rear-view mirror, meaning the case to keep monetary conditions tight for longer is weakening. Accordingly, the market is slowly but surely starting to

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