Macro Insights Weekly - A welcome dollar correction

As markets have finally settled on the notion of the Fed tightening cycle peaking and likely rate cuts in 2H24, a period of USD weakness is likely in the making, in our view.
Speculators with short position on the USD got it wrong earlier this year.
Fed narrative of “higher for longer” in fact caused a dollar rebound in late summer.
But now, with inflation and growth cooling, we think there is room for USD weakness.
The key source of correction would likely be JPY, which we estimate as highly undervalued.
For EMs, USD softening would provide relief to a wide range of hard currency borrowers.