The US dollar is one of the biggest global currencies that can have a major impact on the financial markets. As a result, it is important to stay on top of how the asset is performing as well as potential future performance. Here, we take a look at what could happen to the US dollar in 2023.
US Dollar 2023 performance so far
Before delving into US dollar 2023 predictions, it may be helpful to look at how the currency has performed in 2023 so far.
There are a number of ways to track the performance of USD. However, we are going to use the DXY chart because it is considered to be the most accurate indicator of US dollar performance. The DXY tracks the dollar against six other major currencies to show how it is performing in the wider global economy.
According to the chart, the dollar has had a bumpy year so far. At the beginning of the year, the USD was trading at around 103.494. It then rose to 105.854 in March and has since dropped to a low of 101.612. Overall, the performance of the dollar appears to be weakening. Nevertheless, this could change over the course of the next year.
USD 2023 Predictions
The forecast for the US dollar in 2023 is mixed, with some experts predicting that a strong dollar will return and others predicting a bullish market. In reality, the performance of the US dollar for the remainder of 2023 will rely heavily on Fed decisions and recession rates.
Fed interest rate decisions
The main reason that the dollar hit a high in 2022 was an influx of federal reserve interest hikes that boosted the value of the US dollar. However, these hikes are expected to slow this year as borrowers struggle to keep up with rising rates. This could slow the growth of the dollar and even cause it to enter a bear market.
On the other hand, recently reported US economic data is stronger than expected, which has placed some upwards pressure on the dollar. Most importantly, US inflation rates have started to cool as the impact of the global pandemic is starting to dwindle.
USD as a global reserve
The US dollar was crowned as the global reserve currency in 1944. This has maintained the United States’ position as one of the biggest global economies ever since and has secured the value of the USD. However, recent news has suggested that some countries are planning to reduce their reliance on the US dollar by switching to a bipolar reserve system in which the Japanese yen will also act as a reserve. This shift could have a major impact on the strength of the dollar and potentially cause it to fall.
The outlook for the US dollar in 2023 is mixed. On the one hand, a strengthening US economy and potential interest rate hikes could push the dollar upwards. Whereas a decrease in rate hikes and a looming bipolar reserve system could send the dollar into a bear market. Overall, it is difficult to predict what 2023 will hold for the dollar. However, investors should be prepared for volatility.
