📝See Upside Risks For EUR If Winter Proves Benign: Westpac

We expect 2023 likely to be very different, however. From 111, we look for DXY to fall to 103 by end-2023 and 96 end-2024 – declines of 7% and 13% from spot – with Euro and Sterling key to the result.

While it increasingly looks as though Euro Area activity growth will outpace that seen in the US through 2022 and 2023, this is not the primary factor behind our forecast. Instead, it is the removal of downside risks related to European energy supply.

Our central expectation is for Euro to rise from below USD0.99 currently to USD1.07 and USD1.14 at end-2023 and 2024 respectively. If the winter weather proves benign as the market is increasingly suspecting, upside risks for Euro may build in the new year.

For the time being however, we remain cautious, forecasting only a staggered and partial unwind of 2022’s USD/JPY gains, from JPY147 to JPY136 and JPY126 end-2023 and end-2024. It is worth repeating that risks to this view are skewed up (i.e. towards a weaker Yen).

- Westpac