Recession fears could support dollar in 2023

An incredible run of the US dollar distracted attention from other foreign currencies and added to the year’s few winning trades. In addition, a strong dollar opened the door to strong corporate profits. Despite the fall of the dollar seen in recent weeks, it could keep rising on recession fears in 2023. 

Although rising US yields were a major driver for the greenback, there were also other factors that supported dollar strength. Many investors have taken positions in the dollar to limit losses from market volatility. Increased market volatility was caused by rising global inflation and energy prices.

The Reuters poll of 66 foreign exchange strategists showed that the dollar is expected to trade at the current levels in a year. Many respondents believe that if central bankers around the world keep lifting interest rates, it will have a negative impact on economic growth and fuel demand for the dollar as a perceived safe haven asset.