Bloomberg recently wrote a helpful piece summarising reasons why professional investors think the USD may be weaker going forward. This is due to the Fed reaching the peak in its rate cycle, the strength of the Yuan and the JPY, as well as a potential de-dollarization trend that could accelerate over the next decade.

The Fed peak?

The Fed meets on May 3, and many analysts see the Fed as making one more rate hike before pausing. However, 40% of the 331 correspondents surveyed expect the Fed to start loosening interest rates the year. 87% of those surveyed see the Fed cutting interest rates to 3% or below. So, if these professional opinions are right the USD could see a flush lower if the Fed pulls back from a steeper rate path.

Yen and Yuan appreciation?

Speculation that the BoJ will abandon its yield curve control policy has so far been resisted by the BoJ’s governor, Ueda. However, if Ueda does act, and moves away from the yield control policy, then the JPY could strengthen rapidly.

Professional investors are also expecting the Yuan to gain as China’s economy wakes up.

Is de-dollarization really ahead?

The move away from the USD has long been mooted as a possibility and the majority of those surveyed by Bloomberg now see the dollar representing less than half of global FX reserves within 10 years. See the result of that Bloomberg survey here:

In reality, the near-term direction of the USD is most likely to come from if/when the Fed makes a policy shift. If the Fed feels it has to keep hiking to contain inflation then expect a possible near-term USD strength. The BoJ meets this week, so a surprise shift in policy could pressure the USD as the JPY would possibly sharply gain (watch the USDJPY).