USD strength will be sturdier this time round – HSBC

The USD has been strengthening again but in a gradual manner, unlike the path seen last year. In the view of economists at HSBC, USD strength could be stickier this time round.

Stickier USD strength

The countercyclical support to the USD from slowing global growth should continue, but the fastest part of the latter’s deterioration may be behind us.

Global equity market performance has held up, benefiting from the earlier optimism of central banks reaching the end of their tightening cycles. Nonetheless, the grounds for significant optimism are not as compelling as they used to be, which could end up giving the USD more support than has been the case lately.

Some may believe that USD strength will reverse soon, especially given its overvaluation. However, the USD has been steadily strengthening over the past decade and it has been overvalued, as measured by the real effective exchange rate (REER), over the same period. We believe USD strength will be sturdier this time round.