The US dollar will jump this year thanks to a slow Fed pivot and election uncertainty, Deutsche Bank says

• The US dollar will jump this year thanks to a slow Fed pivot and election uncertainty, Deutsche Bank said.
• Analysts see the greenback rising to $1.05 per euro in early 2024 while its yen exchange rate will hit 150.
• Markets will likely focus on Trump's foreign policy and trade priorities, which include a 10% tariff, the bank said.

The US dollar is on track for a bullish year despite the Federal Reserve's anticipated rate cuts, Deutsche Bank said Thursday.

In the first few months of 2024, analysts see the greenback rising to $1.05 per euro versus $1.097 currently. Meanwhile, the dollar will fetch 150 yen, up from 145 now.  

Dollar strength will stem from the Fed's delayed dovishness, according to the bank's head of FX research, George Saravelos.

As the US is facing the least urgency in easing monetary policy, higher-for-longer rates will lend the greenback further support. That's as other Group of 10 economies will pivot sooner, due to more dire growth-inflation mixes, he explained.

"The Fed is priced to be the most dovish central bank over the next two years given the higher starting point of rates but there are reasons to doubt this will materialize as soon as is priced," Saravelos wrote. 

And once the Fed cuts rates, they won't necessarily bring down the dollar, he added, noting that the six previous easing cycles were more often followed by strength in the currency.  

Instead, the dollar will likely only weaken if the US falls into a recession, which most economists consider unlikely. 

Further dollar support will come from global uncertainty, both due to geopolitical upheaval and the US election. 

The dollar's safe haven reputation means that it often gets a boost during bouts of international turmoil, and investors will likely continue to stick with the currency as the Middle East conflict escalates.

Meanwhile, markets will start pricing in their expectations about the US presidential election by around March, when the two candidates should be known.

"With domestic US policy uncertain until the outcome of the Congressional elections are also known, the market is most likely to focus on Trump's foreign policy and trade priorities which include a 10% across-the-board tariff on imports," Saravelos wrote. "Such a policy is likely to be materially positive for the dollar and with very little priced in the risks here seem asymmetric for dollar strength."