BNP Paribas: Bearish outlook on USD with eyes on EUR/USD and USD/JPY

<p>BNP Paribas articulates its bearish stance on the USD over the coming year, influenced by the Federal Reserve's dovish pivot and the broader economic environment. The bank also provides its long-term targets for EUR/USD and USD/JPY.</p><p>Key Points:</p><ol><li><p>USD Off Highs as Year Ends:</p><ul><li>The dollar has significantly retreated from its highs, influenced by a combination of cooling economic data and the Fed's dovish shift in December.</li></ul></li><li><p>Fed's Impact and Market Pricing:</p><ul><li>The Fed's dovish pivot has accelerated the USD's decline. Markets are now pricing in approximately 150 basis points of rate cuts by the end of 2024, aligning with BNP Paribas' expectations.</li><li>There is a potential for these rate cut expectations to extend further if economic data continues to show a slowdown.</li></ul></li><li><p>Soft Landing Narrative and Interest Rate Differentials:</p><ul><li>Fed rate cuts are believed to support a narrative of a soft economic landing.</li><li>BNP Paribas anticipates fewer rate cuts by other major central banks compared to the Fed, leading to narrowing interest rate differentials between the US and other regions.</li></ul></li><li><p>USD Valuation and Global Investment Trends:</p><ul><li>The USD is currently overvalued according to BNP Paribas' long-term valuation model (BNP Paribas FEER).</li><li>With the normalization of global monetary policy and higher yields, global investors might diversify away from overweight USD exposure.</li></ul></li><li><p>Long-Term Currency Forecasts:</p><ul><li>BNP Paribas maintains its bearish USD forecasts, predicting EUR/USD to rise to 1.15 and 1.18 by the end of 2024 and 2025, respectively.</li><li>The bank also forecasts USD/JPY to fall to 135 and 130 by the end of 2024 and 2025.</li></ul></li></ol><p>Conclusion:</p><p>BNP Paribas anticipates continued weakness in the USD in the coming years, driven by factors like the Fed's dovish monetary policy stance, global economic slowdown, overvaluation concerns, and expected shifts in global investment trends. The bank's forecasts suggest significant appreciation in EUR/USD and a decline in USD/JPY, reflecting a broader multi-year downtrend in the USD.</p><p>For bank trade ideas, <a href="https://plus.efxdata.com/ad/track/4655172E54F06040571CD0AB083845AD" rel="nofollow" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://plus.efxdata.com/ad/track/4655172E54F06040571CD0AB083845AD&amp;source=gmail&amp;ust=1703011581633000&amp;usg=AOvVaw08BiFXtL2vA1BXU7sgdOtL">check out eFX Plus</a>. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. <a href="https://plus.efxdata.com/ad/track/4655172E54F06040571CD0AB083845AD" rel="nofollow" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://plus.efxdata.com/ad/track/4655172E54F06040571CD0AB083845AD&amp;source=gmail&amp;ust=1703011581633000&amp;usg=AOvVaw08BiFXtL2vA1BXU7sgdOtL">Get it here</a>.

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This article was written by Adam Button at www.forexlive.com.