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According to Andrew Grantham, analyst at CIBC, the US dollar is likely to slide against majors towards year—end but emerging market volatility could boost the demand for USD.
Key Quotes:
“The median of FX forecasters don’t appear to have a strong view of what to expect from major currencies at the moment. Median expectations for year-end see GBP, EUR, JPY and CAD projected to be within 0.6% of the mid-week levels versus the US$. That’s often within the range of one trading day, and well below the range of projections a year ago. Economic fortunes have started diverging again, with the US leading and Japan and the UK lagging, which would typically produce a greater leaning in favour of the US$. The fact that it hasn’t could highlight an overvalued starting point for the greenback, which we expect to depreciate against the EUR, JPY and GBP towards year-end.”
“If emerging market volatility continues or worsens it could still seep over into other currencies, which would be a risk to our US$ depreciation story given the greenback would receive a risk-off bid. However, under the base case that emerging market volatility cools down and doesn’t spark dramatic shifts in major currencies, we expect a weakening in the US$ against most majors.”