We are directionally aligned with consensus – like most observers, we believe the greenback will ultimately weaken in 2024 – but we think its descent will be more turbulent than others expect.

A number of factors could upset prevailing views: If markets begin questioning the soft landing thesis in earnest, “dollar smile” dynamics could see capital flows re-routed back into US financial markets, triggering a sustained rally in the greenback. Signs of stubbornly sticky inflation might drive a reappraisal across developed-market yield curves, weighing on high-beta currencies. A stimulus-led acceleration in China could lift commodity benchmarks and impact price expectations throughout the global economy. Or, on the campaign trail, an increasingly combative Donald Trump might threaten to destabilize economies with trade links to the US. But the most likely scenario, in our view, is one in which increased dispersion in economic growth patterns leads to greater divergence between central banks, keeping cross-currency rate differentials on a dollar-favourable footing.

The dollar will remain vulnerable to pullbacks throughout 2024, but clear directional trading narratives are unlikely to remain intact for long, and the currency could emerge stronger than many currently expect.