USD to continue its march forward amid faster tapering and earlier rate hikes – HSBC

Economists at HSBC have changed their view on the Fed’s likely policy path. They expect faster tapering and earlier rate hikes.

Dollar to benefit from the rate differential vs most other major currencies

“We expect the tapering of bond purchases to go faster, which also allows earlier rate hikes. We believe the Fed will hike policy rates by 0.25% in June 2022, September 2022, March 2023 and September 2023.”

“We note that the market has already priced in 2 hikes in 2022, and our 2023 assumptions are also close to the market’s expectations. Hence, we do not change our investment strategy, but think volatility will help quality stocks, the US dollar and hedge funds.”

“The US dollar should continue to see mild upside. Even though the rate hikes are already expected, we think the dollar will benefit from the rate differential vs most other major currencies. Within EM FX, CNY should remain relatively resilient.”