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One of the most prominent banks on the U.S. Main Street has upgraded its stance for the U.S. Dollar over the remainder of 2023, although weakness is still expected to be a feature of 2024.

Wells Fargo says in a monthly research note the dollar can exhibit more strength through to to end of 2023 than had been previously expected.

"Our view on the U.S. dollar has changed slightly. We now believe the dollar can exhibit more strength through the end of 2023 than previously expected as China's slowdown and a resilient U.S. economy can support the greenback," says Nick Bennenbroek, an economist at Wells Fargo.

The call comes amidst a multi-week rebound in the U.S. currency that has pushed the Euro-Dollar rate back to 1.07 and the Pound-Dollar exchange rate to below 1.25.

There is unlikely to be any meaningful respite for the European currencies with Wells Fargo expecting the Federal Reserve to maintain a measured approach to rate cuts and the possibility of a soft landing should lead to less dollar depreciation.

Wells Fargo's economists expect the global macroeconomic backdrop to deteriorate further amidst a sharp Chinese economic deceleration, which can boost the dollar via safe haven flows.

Also offering a boost to the dollar through the remainder of 2023 is the resilience of the U.S. economy and the possibility of additional Federal Reserve rate hikes.

This "should also attract investors toward dollar-denominated assets and support the greenback through the end of 2023," says Bennenbroek.

"This theory has held steady for some time now; however, as China's slowdown has intensified and the U.S. economy hangs tough, we expect the dollar to strengthen more than previously forecast," he adds.

Longer term, Wells Fargo continues to forecast a weaker dollar; however, they now believe the greenback will experience a slower pace of depreciation than previously expected.

"We still expect Fed rate cuts to weigh on the dollar next year, but with a U.S. “soft landing” a real possibility and inflation likely to hover above the Fed's target in 2024, sharp rate cuts are now less likely. With the Fed likely to deliver a version of a “higher for longer” stance on interest rates, the dollar can now exhibit more resilience over the course of 2024," says Bennenbroek.