The dollar's troubles are far from over - expect a slump toward 2020 lows, a Societe Generale analyst says

• The US dollar could extend its slide toward lows last tested near the end of 2020, according to a Societe Generale analyst.
• "I would expect the Dollar Index to closer but not all the way to, the lows at the end of 2020," he said in a note.
• The dollar has weakened through much of 2023 as expectations for further US interest-rate increases got scaled back. 

The US dollar recently completed two back-to-back half years of declines, it's longest losing streak since 2017. The currency's troubles may be far from over, according to a Societe Generale analyst.

The greenback could extend its drop toward the lows last seen near the end of 2020, Kit Juckes, a currency strategist at the European bank, wrote in a research note.

The US Dollar Index –  which tracks the greenback against a basket six major currencies – has fallen about 13% from its late 2022 highs and dropped below the key 100 level this month. The decline comes as US inflation rapidly cools, fueling bets the Federal Reserve could soon stop raising interest rates, or even start cutting them. 

The prospect of lower interest rates tend to make a currency less attractive to international investors who seek higher yields.

"As was the case in January/February before the SVB mini crisis, the market is anticipating the peak in US rates and a further narrowing relative rates. If nothing happens to scupper those expectations (another upside surprise in US growth, or further European growth disappointment) I would expect the Dollar Index to closer but not all the way to, the lows at the end of 2020," currency analyst Kit Juckes wrote in the note. 

"That won't happen in a straight line and will require further interest rate convergence between the US and other major economies, however," he added. 

The Fed has raised benchmark rates by 500 basis points since last spring, from near-zero levels to north of 5%.