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It's a counter-consensus call for U.S. Dollar strength in 2024 from one of the world's banking giants, resulting in the Euro to Dollar exchange rate ending the year closer to parity than 1.10.

HSBC's projections show Euro-Dollar will trend lower as the Federal Reserve and other central banks may not be able to loosen monetary policy as much as markets are thinking.

As a result, HSBC warns there has been a lot of optimism expressed by markets already, and the hurdles for this to be upheld are even higher now.

Stock markets rose, and the Dollar fell in the wake of a perceived 'pivot' in policy at the Federal Reserve at its December update, where policymakers condoned market expectations for several interest rate cuts to fall in 2024.

The 'pivot' led Goldman Sachs to ramp up the number of bets it expects in 2024 from one to five, resulting in a downgrade to dollar forecasts by the bank's FX strategy team.

But the Fed's latest guidance has not shaken expectations at HSBC who are looking in the opposite direction.

"We retain our expectation for a stronger USD during 2024, in contrast to the consensus," says Daragh Maher, Head of Research for the Americas at HSBC.

Above: "US growth surprises still holding up strong while the RoW has not improved" - HSBC.

The USD has been pressured since early November, which HSBC says is a result of U.S. inflation slowing and the Fed's pivot supporting risk appetite.

"However, we do not expect this to continue next year. There has been a lot of optimism expressed by markets already and the hurdles for this to be upheld are even higher now. Global growth is sluggish. The Fed and other central banks may not be able to loosen monetary policy as much as markets are thinking. Geopolitical risks are elevated," says Maher.

This combination leads HSBC's analysts to believe markets will not shift to a sustained environment of a 'risk on and USD down' theme, which would be consistent with USD weakness.

Furthermore, U.S. exceptionalism may not be as potent as it was for the USD, but to believe it will disappear is misguided, warns Maher (see above chart).

"A number of scenarios, including a potential US soft landing, still point to a strong USD, but only a global soft landing delivers a clear dollar bear case," he adds.

HSBC forecasts Euro-Dollar at 1.06 by the end of the first quarter of 2024, below the current level of spot at 1.0950, 1.04 by mid-2024, 1.02 by the end of the third quarter and 1.02 by year-end.