News & analysis

Entering 2024, we were of the opinion that markets had gone too far, too quickly in pricing easing expectations for the Fed. Not only did this leave cross-asset pricing looking out of touch with economic reality, but it also left the dollar looking distinctly undervalued. As such, our key call for January was for a reversal in December’s price action as traders returned to the office, and markets returned to their senses. This has largely played out over the past month. The DXY index rallied from 101.4 at the beginning of the year, climbing to 103.5 by month-end, fueled by a combination of good US economic data and hawkish Fedspeak. Nonetheless, the month just gone also marked the first signs of a pivot from multiple developed market central banks, including the Fed, ECB, BoC, and to a lesser extent the BoE. This saw markets increasingly align with our monetary policy outlook for 2024, and largely saw FX pairs move in line with our forecasts as a consequence. With growth conditions remaining weak in China and Europe too, contrasting once again with US economic exceptionalism, this keeps our macroeconomic base case largely intact heading into February.

With markets having now unwound December’s moves, the scope for further dollar appreciation looks more limited for February in our view. Moreover, with a drop off in the number of central bank meetings over the course of the month, monetary policy is also likely to play a lesser role for FX markets. That said, this should provide an opportunity for other drivers to come to the fore in the short term. In particular, markets will likely continue to assess relative growth prospects, which should continue to favour modest upside for the greenback. Europe is likely to be the other side of that coin, with weak activity likely to weigh on regional FX outside of CHF. The yuan too would be in a similar situation, if not for continued intervention by the PBoC to limit any weakness. All told, with our macro thesis for the year largely playing out as expected so far, we have made only minimal changes to our forecasts on this occasion and instead, look for a more modest extension of January’s trends to broadly play out over the coming month.

You can read our February 2024 FX Forecasts report here:




Simon Harvey, Head of FX Analysis

Nick Rees, FX Market Analyst

María Marcos, FX Market Analyst


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