A sustained cooling in inflation would allow the Fed to cut interest rates, and the dollar could depreciate 10% to 15% from current levels over the next 18 months.

Stephen Jen, founder of the ‘Dollar Smile theory’ and chief executive of asset manager Eurizon SLJ Capital, wrote in an April 4 report that the dollar could depreciate 10% to 15% from current levels over the next 18 months as inflation continues to cool, allowing the Fed to cut interest rates.

‘U.S. inflation is expected to continue to fall at the same rate as it rose in 2021 and the first half of 2022,’ Zhan wrote in the report. In his view, the European Central Bank and the Federal Reserve are close to peak interest rates, and cuts are imminent.
He said the central bank’s nine previous interest rate rises, combined with tighter credit conditions triggered by the banking crisis, had already indicated that inflation was trending downward. The strategist said the Fed could then choose to cut interest rates.

“Consistent with the dollar smile theory, receding inflation and a soft landing for the economy should push the dollar to the bottom of the ‘smile curve’, which could mean a 10 per cent depreciation this year and more downside next year.” Zhan wrote in the report.

Similarly, Luca Mannucci, chief strategist at Italy’s MPS Capital Services Banca per le Imprese SpA, which ranked first in Bloomberg’s prediction accuracy rankings for the first quarter of 2023, warns that in the second half of this year, The dollar could lose as much as 5 per cent against other currencies.

Luca Mannucci believes the US will be dragged into recession because of aggressive interest rate hikes by the Federal Reserve to fight inflation and lingering risks from the recent banking turmoil.

The US Federal Reserve has come under intense pressure to pause interest rate rises in the near future after the collapse of Silicon Valley Bank last month triggered a banking crisis and a string of four bank failures posed risks to financial stability.

Foreign trade people who pay attention to exchange rate fluctuations know that the dollar index is closely related to the RMB exchange rate.

In 2022, the dollar index surged 7.9%, the largest annual gain in seven years since 2015, topping the 114 level. The renminbi has depreciated 7.86 percent against the dollar, ranking in the middle among major Asian currencies.

Since November, however, the dollar has been on a choppy downward trajectory, falling from the 113 level to around 102 today and more than 10 percent below its September high.

In 2022, international institutions’ forecasts for the RMB have been adjusted again and again (in the direction of depreciation), with forecasts of 7.5 or even 7.8 not uncommon. In 2023, however, the consensus is that the yuan will clear the gloom and continue to recover.

Zhang Ming, deputy director of the Institute of Finance and Banking at the Chinese Academy of Social Sciences and deputy director of the National Finance and Development Laboratory, said he is optimistic about the yuan’s exchange rate trend against the dollar in the second half of 2023 and said he would not be surprised to see it rise to 6.4-6.5 by the end of the year.

In March, the dollar index fell 2.29% from 105.0000 to 102.5953. The euro gained 2.8% and the pound gained 2.5%.

In the same month, the RMB also showed obvious fluctuations, the onshore range was 6.81-6.97 yuan, amplitude 2.34%, the opening and closing of 6.93 yuan to 6.87 yuan appreciation of 0.86%; Offshore interval is 6.80-6.99 yuan, amplitude 2.79%; Opening and closing at 6.95 yuan to 6.87 yuan appreciation of 1.15%.

As for our foreign business man opinion, When the dollar is depreciating, the dollar settlement, can give customers in the short term with cost reduction. 

In the long run, our company can also adopt RMB settlement. As long as the buyer can exchange RMB, it will be easy for us to operate.

Therefore, the payment currency is not a very difficult thing for us, as long as customers want to buy carbon steel plate, carbon steel coil, or galvanized coil, galvanized sheet from our company, we can provide them well.