Danske Bank: The dollar will still dominate the market

Analysts at Danske Bank continue to expect global inflation trends and Fed policy to dominate markets for the foreseeable future in 2023, while the US dollar will remain dominant. Our bank’s core assumptions are a stronger dollar and a tighter global financial environment. The risk is primarily whether the Fed will achieve a true policy turn – possibly due to rapidly receding inflationary pressures, rising global capital spending and/or increased industrial production. In terms of these potential triggers, these enhanced dollar liquidity increases market optimism that the Fed will shift to a less aggressive stance and will initially slow the pace of rate hikes. However, it is still believed that there are significant obstacles to the Fed changing its policy stance and that it is too early to declare a victory over above-target inflation as the U.S. labor market remains strong.