Analysts at Natixis discuss the trends they see for the major currencies.

The Yen exchange rate depends on the BoJ's monetary policy strategy

Persistent inflation in the Eurozone will probably mean that the ECB will keep interest rates fairly high, while the Fed will be able to cut interest rates as disinflation in the US eases. This would favour an appreciation of the Euro against the Dollar, but on the other hand, the US is more attractive than the Eurozone for corporate investment: all things considered, we can expect the Euro to appreciate slightly against the Dollar.

The weak growth in China, due to population ageing, low productivity gains, rising household savings rate and weak investment, is prompting the Chinese authorities to seek a weakening of the Renminbi, hence the ongoing rate cuts in China, which will cause a depreciation of the RMB, albeit with the constraint of not doing too much damage to the financial situation of Chinese banks.

The fact that long-term interest rates remain very low in Japan, due to the yield curve control policy, should lead to a further depreciation of the Yen against the Dollar. This depreciation will end when Dollar interest rates fall and if the BoJ gradually abandons the YCC policy (the cap on 10-year interest rates), a move that is expected to start in 2024.