PHILLIP ISAKPA IN MANCHESTER, UK
A few days before entering the last month of 2023, international market analysts are arriving at different positions on what will happen to the dollar, the global reserve currency, in 2024.
The dollar has been strong for the most part this year, the result of the actions of the Federal Reserve, the US equivalent of the central bank, in its fight against inflation with aggressive interest rate hikes. Now, many analysts are saying that such an approach is being wound down and that in 2024, there is going to be a big dollar sell-off, which will see the currency consistently weaken.
But if you are in Nigeria, the analysts are not asking you to raise hopes betting the naira against the dollar. Nigeria’s economy was severely damaged in the eight years that Muhamadu Buhari held sway and plunged it into an abyss that would take it a long time to get out of.
Analysts are telling investors who play in the international markets and bet the dollar against other currencies to take note, not naira players.
For instance, Nigel Green, group chief executive of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations, is one of those who thinks the US dollar is likely to “consistently weaken” throughout 2024 as the US Federal Reserve winds up its aggressive interest rate hiking agenda.
He actually says that “The Big Dollar Sell-Off is on.”
“We expect this trend to increase in momentum throughout 2024 as investors increasingly believe that the Federal Reserve’s most aggressive interest rate hiking campaign in a generation is winding down.
“The dollar traditionally performs well at the start of the year, but it is likely that it will consistently weaken during the course of next year as the Fed moves to ease its grip on rates.
“With the battle against inflation being won, it can be expected that the central bank will roll out multiple rate cuts in 2024, prompting investors to think that holding so many dollars is not as necessary,” Green said.
Providing the scenario for his prediction, Green says the expectation is that lower interest rates will reduce the attractiveness of dollar-denominated assets, adding that as interest rates in the US decline, the interest rate differential between the dollar and other currencies narrows, diminishing the yield advantage that has historically drawn investors to the greenback.
He further adds that the possibility of multiple rate cuts by the Fed is prompting investors to seek higher-yielding assets elsewhere, contributing to the accelerated exit from the dollar.
“Alternative investments in currencies from regions with more favourable interest rate outlooks become increasingly appealing as the interest rate differentials shift in their favour,” he said.
According to him the reverberations of this dollar sell-off extend beyond the borders of the United States.
“A weakened dollar has implications for global trade, as a depreciating currency can boost US exports but may also lead to tensions with trading partners,” says Green
“In addition, emerging market economies, which often carry significant levels of dollar-denominated debt, will experience relief as the burden of servicing this debt is alleviated with a weaker dollar.
“As investors bet big on the Fed cutting rates, 2024 could be dubbed ‘the year of the dollar dive’,” he concluded.