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US English

USD forecast: DXY slides in risk-off market sentiment

By Kathryn Davies

Edited by Georgy Istigechev


Benjamin Franklin’s face on a $100 bill
Can the US dollar keep on rising? – Photo: Andrii Spy_k /

The ICE US Dollar Index (DXY) – a measure of the currency’s strength against a basket of rival currencies including the euro (EUR), Japanese yen (JPY) and British pound (GBP) – stood at the 103 mark as of 24 May 2023, having fallen over 10% from its 10-year high of 114.78 in September 2022. 

The US Federal Reserve’s (Fed) previously aggressive monetary contraction policy that saw the US interest rate raised by 425 basis points (bp) over the course of 2022,  from 0.25% in March to 4.50% in December. However, a series of 25 bp hikes this year may signal that the Fed intends to halt its hikes, this along with slowing rates of inflation and fears of a potential recession in the US have pulled the greenback off its highs.

Read on for the latest USD news and USD forecasts.

What is the USD?

USD is the abbreviation for the US dollar or United States dollar, the official currency of the United States, the world’s most widespread and popular currency. The USD is the world’s reserve currency and the most traded currency on the foreign exchange market.

The value of the USD is measured against the value of other currencies, creating the exchange rate. For example, EUR/USD measures the euro against the US dollar.

How did the US dollar perform in 2022?

After steadily climbing throughout 2021, the DXY saw a solid start to 2022. The US Dollar Index rallied from a low point of 94.63 in mid-January to a 20-year high of just over 114 in late September.

DXY has experienced a significant drop since the publication of cooler-than-expected inflation data. Expectations of slower rate hikes from the Fed, and a lower potential terminal rate for US interest rates, have resulted in a repositioned dollar.

US Dollar Index Chart

What generally drives the USD?

Several key factors influence the value of the USD against other currencies, such as monetary policy decisions made by the Federal Reserve, which depend on the macroeconomic backdrop and data. Political events, as well as geopolitical events, can also influence the US dollar. The global status of the USD is mainly drivern by the strength of the US economy and changes in its value therefore having implications for the global economy. 

For example, when US inflation is elevated, and the Fed raises interest rates to rein in consumer prices, the USD value often appreciates. This is because higher interest rates attract foreign investment, lifting demand for the currency. Conversely, when interest rates are lowered to stimulate economic growth, investors could look to invest in another country, pulling the USD lower.

It is also important to remember that how the USD moves, i.e., whether the USD gets stronger or weaker, also depends on the performance of the other currency in the exchange rate.

Historical USD performance

Over the past 20 years, the US Dollar Index has traded across a wide range, from 120.00 to a low of 71.00. The index started in the year 2000 at 101.60 before rising to 121.00 in August 2001. The DXY then fell over the next few years, reaching a low of 71.00 in the financial crisis of 2008.

Since then, the USD has been steadily climbing higher to 103.80 in March 2020 as Covid hit, driving safe-haven flows. From there, the price eased back slightly to 95.70, where it was trading at the start of 2022.

Five-year price chart for DXY

What has been driving the USD lately?

Inflation has been a critical concern for the market and is set to remain so.

Supply-chain bottlenecks, China’s continuing Covid lockdowns, surging energy prices, the war in Ukraine, and rising wages amid a post-pandemic shortage of workers have all contributed to surging consumer prices.

According to the January  US Bureau of Labor Statistics report, annual inflation rate for the United States is 6.4% for the 12 months ended January 2023, after rising 6.5% previously.

“The Consumer Price Index for all Urban Consumers (CPI-U) rose 0.5 percent in January on a seasonally adjusted basis, after increasing 0.1 percent in December.  Over the last 12 months, all the items index increased 6.4 percent before seasonal adjustment.”

This indicates that inflation turned higher to start 2023, caused by rising shelter, gas and fuel prices, all of which took its toll on consumers. 

USD forecast 2023

The Fed expects rates to peak at 4.5% to 4.75% in 2023, according to the US central bank’s own projections. Goldman Sachs analysts projected the Fed could lift its benchmark rate even higher, to a range of 4.75% to 5% by March 2023. 

Maxim Hofer, senior consultant at Euromonitor International wrote in a note: 

"Dollar strength is waning following its peak, though volatility will remain elevated in 2023.However, although the dollar is likely to decline further in 2023, it is expected that exchange rate volatility will remain elevated. This is especially due to high macroeconomic uncertainty with ongoing global recession risks, as well as persistent US inflation due to significant shortages in its labour market which could result in higher interest rates for longer.
"Both developments would renew investor demand for US assets, thus boosting dollar strength. As a consequence, businesses and consumers outside the US would face a resurgence of exchange rate-related financial pressures, ultimately weighing on global growth."

ING Group analysts Antoine Bouvet, Benjamin Schroeder, and Padhraic Garvey summarised the position in a central bank policy overview on 19 January:

“Near term the market is now homing in on a 25bp hike from the Fed at the February meeting and the possibility of another hike following in March. This implies the peak of the Fed funds upper bound target rate at 5%.

The Fed hawks Bullard and Mester were making the case for tightening policy rate beyond 5%, but the market easily glossed over their comments also given that in the Fed’s own survey, the Beige Book, contacts reported expectations of further moderating price growth. The focus is increasingly turning to the first Fed cuts, 50bp in total now discounted for the second half of the year.”

USD forecasts and analysts’ views

With inflation elevated, the Fed set to continue hiking and economic growth slowing, what are analysts’ USD predictions?

In a USD forecast on 30 January, Chris Turner at ING Group’s analytics arm THINK said:

“The dollar starts the weak in very narrow ranges and not far from the lows of the year. This week will stress test the consensus view amongst investors that i) the Federal Reserve will start to acknowledge easing price pressures and soon end its tightening cycle, ii) China reopening will support global growth and iii) that lower energy prices mean improved European growth prospects.

Our FX contribution to the FOMC preview outlines a scenario where the dollar could sell off and EUR/USD trade over 1.10 were the Fed to hugely surprise by suggesting that any additional hikes, after this week's 25bp increase, would be data dependent. That seems unlikely. More likely is the Fed pushing back against the 50bp of easing priced into the second half of the year and the dollar enjoying a brief rally.

Our game plan sees the dollar staying supported into Wednesday's FOMC meeting (e.g. DXY holding support down here at 101.30/50), but any FOMC-inspired rally in DXY to the 102.50/103.00 area proving temporary.”


Citibank’s wealth management arm in Hong Kong predicted that the DXY could fall to 96.87 in six to 12 months, and dip slightly lower to 96.61 in the long term. 

Analysts at HSBC were also bearish toward the US dollar trend. In their US dollar forecast, they said:

“We believe the USD will weaken further in 2023, as its significant overvaluation (based on the real effective exchange rate (REER)) can no longer be supported, once the Fed stops hiking, global growth shows signs of troughing and market volatility comes down.

“We acknowledge there would be “safe-haven” demand for the USD, if the US economy goes into a deep recession. However, we see that as a risk scenario, rather than an inevitable outcome. There have not been many instances when the Fed drove the US economy into a hard landing with over-tightening of monetary policy.”

Algorithm-based prediction website Wallet Investor suggested the US dollar index could rise to 107.143 by the end of the year in its USD forecast for 2023. The USD forecast also saw the index closing out 2024 at an average of 113.588. 

Although the service didn’t provide a USD forecast for 2030, its five-year outlook for the DXY index had it reaching 134.912 in May 2028, following the bullish trend.

EUR/USD forecast: Will USD strengthen against the euro? 

The EUR/USD fell to parity for the first time in 20 years in September 2022, owing to the eurozone’s vulnerability to the Ukraine crisis. However, International Energy Agency (IEA) stated in January 2023 that  Europe made “impressive progress” in 2022 of reducing its reliance on Russian gas supplies and making sure it had enough gas in storage, the IEA says.

But danger remains, as highlighted by the IEA: 


1.29 Price
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0.66 Price
-0.150% 1D Chg, %
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156.29 Price
-0.440% 1D Chg, %
Long position overnight fee 0.0109%
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0.66 Price
-0.150% 1D Chg, %
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"Russian gas deliveries could be “considerably lower” in 2023 – or drop to zero. This could create an even bigger gap in European and global gas supplies than in 2022."
"Competition for supplies of liquified natural gas (LNG) could also increase, if demand from China picks up. There’s also no guarantee that Europe’s mild winter temperatures will continue."

Europe is very dependent on Russian energy, supplies of which are in jeopardy as Vladimir Putin has weaponised gas supplies, sending prices higher and contributing to concerns about inflation and stagflation.

Steve Englander, head of global G-10 FX research at Standard Chartered is more optimistic around the EUR strength. 

“The euro is trading within its late December range, but incoming data since the beginning of 2023 suggest to us that it should be stronger,” 
“Both euro area core inflation and economic surprises have continued to strengthen, making it easier for the European Central Bank to maintain a hawkish tone. Energy concerns that loomed large as a EUR-negative in mid-2022 are beginning to ebb.”


The ECB raised rates by 50 bps in 2023, bringing interest rate to 3%, the bank signalled another rate hike in March, which would raise the rate to 3.5%.

The ECB and the Fed have continued with a more hawkish tone in 2023, as they both focus on bringing inflation back toward target. ECB policymaker, Robert Holzmann said in January that  “policy interest rates will have to rise significantly further to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target.”

What is the USD future prediction against EUR? 

EUR/USD live chart

JP Morgan analysts have forecasted that EUR/USD is predicted to reach 1.10 in March 2023, before declining to 1.08 September 2023 and holding at 1.08 in December 2023.

Analyst Chris Turner at ING was bearish toward the dollar in a EUR/USD forecast:

“Broadening signs of slowing US price pressures, stronger signs of US recession, a better Chinese demand outlook and a better energy situation all made our sub-consensus EUR/USD forecasts untenable. We now favour EUR/USD moving higher through 2Q23 towards the 1.15 area – but the gains may stall there in 2H23 given what could be trouble with the US debt ceiling in late summer and higher energy prices next winter.”

On 19 January, analysts at Danske Bank forecasted EUR/USD to gradually move lower and trade below parity in 12 months’ time:

“Despite recent USD-headwinds, we continue to forecast EUR/USD at 0.93 in 12 months on the back of a substantial negative terms-of-trade shock to Europe vs US, tightening of global financial conditions and downside risk to euro-area growth.”

GBP/USD forecast: Is the USD expected to rise against the GBP? 

The pound sterling steeply declined versus the US dollar in 2022, falling to its lowest level in more than 37 years on 16 September – the 30th anniversary of 1992’s Black Wednesday event.

In the November UK fiscal statement, chancellor Jeremy Hunt announced plans for stability, growth and public services but highlighted the global energy crisis and inflation issues and the plan for the UK Government to strengten its public finances, bring down inflation, as well as protect jobs. 

In February 2023, The Bank of England's Monetary Policy Committee (MPC), met and voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points, to 4%.

The independent Office for Budget Responsibility (OBR) late last year predicted the sharpest fall in living standards on record amid a five-quarter recession, with GDP contracting by 1.4% in 2023.

Markets are bracing for a period of austerity, with the Bank of England anticipated to hike interest rates in December by 50bps.

GBP/USD live chart

What is the future dollar value prediction against the British pound?

Analysts at JP Morgan predict that GBP/USD is forecast to reach 1.20 in March 2023, before falling to 1.18 in June 2023, to 1.16 in September 2023 and to 1.15 in December 2023.

Fiona Cincotta, senior market analyst at City Index, believes that GBP/USD could hold steady, commenting on the currency pair: 

“GBP/USD has rallied 6% over the past six weeks, hitting a three-month high of 1.2027 on Monday. If GBP/USD does manage to rise, it’s likely to be more of a dollar weakness story rather than owing to any explicit pound strength.

“The USD is holding steady as investors continue digesting yesterday’s stronger-than-forecast retail sales and slightly more hawkish comments from Fed speakers.” Cincotta’s forecast proved to be correct, as the BoE announced its biggest interest rate hike in 27 years in early August, taking borrowing costs up half a point to 1.75%. The bank’s Monetary Policy Committee believes the UK will enter a recession in Q4 2022, and that the recession will last five quarters.”

“The MPC’s latest projections describe a very challenging outlook for the UK economy. It is expected to be in recession for a prolonged period and CPI inflation remains elevated at over 10% in the near term,” the BoE said in its latest Monetary Policy Report.

“From mid-2023, inflation is expected to fall sharply, conditioned on the elevated path of market interest rates, and as previous increases in energy prices drop out of the annual comparison. It then declines to some way below the 2% target in years two and three of the projection. This reflects a negative contribution from energy prices, as well as the emergence of an increasing degree of economic slack and a steadily rising unemployment rate. The risks around that declining path for inflation are judged to be to the upside.” 

The market is currently expecting a 50 basis point hike from the BoE in December. In an FX snapshot on 30 January 2022, ING’s Chris Turner shared Cincotta’s opinion, commenting that a hawkish BoE could prop up sterling:

“A 50bp rate hike could prove mildly supportive for sterling. Our base case of a 50bp hike is not fully priced by the market. And with wage pressures remaining firm and base effects not expected to see CPI rolling substantially lower until the second quarter, it looks too early for the BoE to be sounding the all-clear on inflation. Depending on the state of the dollar after the FOMC meeting, GBP/USD could be pressing 1.2500 by the end of the week.”

Conversely, analyst Piero Cingari recently opined that the upcoming rate hike by the BoE would likely support the pound:

“If the BoE turns out to be more hawkish than expected, it will keep inflationary expectations and pressures in check. In this scenario, UK interest rates will increase quicker than UK 10-year gilt yields, limiting the term premium and enhancing policy credibility. This is a favourable scenario for the pound, which can help limit the downside and prevent speculators from shorting a high-yielding currency.”

Scotiabank’s chief FX Strategist Shaun Osborne was neutral on GBP/USD in his latest daily update, commenting:

“Sterling has advanced modestly to start the week and remains close to 1.24. The BoE policy decision this week is expected to result in a 50bps hike (markets have priced in 45-46bps at this point) amid elevated underlying price pressures (wages)."

"Messaging on the policy outlook (and perhaps the risk of a split decision) may convey a little less hawkishness than the ECB but a bolder (than the Fed) move may still propel the pound back to (and through perhaps) key resistance in the mid-1.24s.”

According to the latest figures from TradingEconomics, the GBP/USD pair could be priced at $1.21404 by the end of this quarter and $1.14015 in 12 months’ time, according to the platform’s global macro models, projections, and analysts’ expectations.

USD forecast for 2025

The Economy Forecast Agency’s long-term DXY forecast for 2025 expected the DXY index to close at about 110 in 2025.  WalletInvestor suggested the US dollar index could rise to 119.193 in 2025.

When looking for US dollar predictions vs other world’s major currencies, it’s important to bear in mind that analysts’ price targets can be wrong. Analysts’ USD projections are based on USD technical analysis and a fundamental study of currency pairs’ performance. However, past performance is not a guarantee of future results. 

Do your own research and always remember your decision to trade depends on your attitude to risk, your expertise in this market, the spread of your investment portfolio and how comfortable you feel about losing money. Never trade more than you can afford to lose.


Why has the USD been falling?

The US dollar has been falling in the last few months as declining US inflation has led markets to speculate the Federal Reserve could relax its monetary tightening policy.

Will USD go up or down?

Many factors effect whether the USD, or any currency, rises or falls. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading. And never invest or trade money you cannot afford to lose.

When is the best time to trade USD?

The best time to trade USD is around 8am ET (UTC –5) to 12pm ET (UTC –5). This is when most US economic data is released.

Is USD a buy, sell or hold?

Whether USD is a buy, sell or hold for you depends on your trading objectives. It’s important to do your own research. Your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your portfolio and how comfortable you feel about losing money. You should never trade more than you can afford to lose.

What determines the value of the dollar?

The Federal Reserve monetary policy stance principally determines the USD performance. If the Fed hikes interest rates, the USD is expected to rise. If it cuts rates, the USD market could fall. Other factors, such as safe-haven inflows or outflows, can also influence the value of the US dollar.

Markets in this article

1.08922 USD
0.00007 +0.010%
1.29303 USD
-0.00034 -0.030%
US Dollar Index
103.833 USD
-0.052 -0.050%
156.288 USD
-0.696 -0.440%

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