In the statement accompanying its May meeting, the Fed removed wording in previous versions stating that “additional firming may be appropriate.”.The Eurozone, the UK, and Swiss central banks are lagging the Fed in this rate-hike cycle, and we now see upside for all three currencies against the USD.Robust central bank demand, broad USD weakness, and rising US recession risks should all support gold. We think gold is likely to break its all-time high later in 2023 and forecast prices will hit USD 2,250/oz by June 2024.Gold also looks set to benefit from a weaker dollar, in our view. Recent Japanese data points to an economic expansion, making it easier for the Bank of Japan to end its ultra-easy monetary policy.A range of indicators like AU-US yield spreads, capital flows, and local central bank pricing suggest that the recent selloff in AUDUSD has gone too far.We expect the Reserve Bank of Australia to keep its tightening bias, and a moderately stimulatory budget should mean no rate cuts this year.We see upside for the Japanese yen and Austrlian dollar. We expect the global economic growth outlook to improve in the second half. China's recovery remains on track, and the benefits of lower energy prices have yet to fully play out in Europe.The Fed, which has a recession in its baseline projections, remains likely to lead the rate-cutting cycle among G10 economies.The direction of a weakening dollar remains clear. We continue to advise hedging excessive USD long exposure and using the recent uptick in option volatility to engage in yield pick-up strategies. But we still believe the Fed will stop hiking before its major peers, contributing to renewed dollar weakness.
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