Image © Bank of England

The Dollar has not run out of gas just yet and should lead the pack in 2024, according to new research from HSBC.

"The consensus is banking on the USD to come last as the Fed’s cutting cycle unfolds. We disagree with this thinking," says Paul Mackel, Head of FX Research at HSBC.

Meanwhile, the pound and euro are expected to tire and trend lower as the Bank of England and European Central Bank slash interest rates.

Furthermore, the external positions of both the UK and Eurozone are expected to remain a challenge to currency appreciation in the coming months.

These views pit HSBC against the consensus, which sees a steady decline in the Dollar over the coming year.

"The race has started and the consensus is banking on the USD coming last this year, as the Fed is expected to cut rates. Other central banks are seen pivoting too, which should push their currencies down the leader board; the EUR and GBP are set to tire. The USD is not expected to lead the pack as easily as in the past couple of years, but it has not run out of gas yet," says Mackel.

Regarding the Pound's outlook, HSBC's latest FX research suggests the UK's external position - its balance of payments - is deteriorating again.

Above: "The UK current account deficit is persistent but has been steady." - HSBC.

Specifically, analysts detect a widening of the UK's negative international investment position, which could be a precursor to greater net income outflows from here.

"This poses a challenge for GBP, in our view, as recent broader strength in the currency does not reflect weakness in these core flows," says Mackel.

Above: "The UK current account deficit is persistent but has been steady" - HSBC.

The UK has a persistent current account deficit as it spends more than it earns, requiring foreign capital inflows to prop up the value of the Pound.

These inflows can be volatile, particularly during times of global financial stress or turmoil, leaving the Pound exposed to unexpected changes in sentiment.

The Pound to Dollar exchange rate is forecast by HSBC to depreciate to 1.26 by the end of the first quarter, 1.24 by the end of the second quarter, 1.22 by the end of the third quarter and 1.20 by year-end.