US dollar strength will continue over the remainder of 2022 and over the course of 2023 according to analysts at Wells Fargo. They point out that despite more aggressive monetary tightening from central banks across the world, they believe the Federal Reserve will lead tightening and will continue to push the dollar higher against G10 and emerging market currencies.

Key Quotes: 

“Slower global growth underpins our view for a stronger U.S. dollar over the second half of this year and into 2023. In our view, declining growth prospects should attract capital flows to dollar-denominated assets, given the dollar’s safe-haven qualities. But, perhaps more inspiring for the dollar’s prospects is a hawkish Federal Reserve and the outlook for tighter Fed monetary policy.”

“As of now, we forecast more Fed tightening than financial markets have priced and for most foreign central banks to lag behind the Fed. While the ECB should begin raising interest rates in July and major central banks, such as the Reserve Bank of Australia, become more hawkish, the combination of higher U.S. rates and a smaller Fed balance sheet should result in dollar strength against most G10 currencies.”

“Emerging market currencies are likely to be the most sensitive against this backdrop. We expect emerging market currencies, particularly in Latin America, to weaken over the foreseeable future as growth concerns build and political risk weighs on sentiment.”