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FX Markets Weekly Wrap

Dollar falters on continued risk-on rally

The US dollar continued to struggle this week as equity markets extended their rebound and commodity prices also rallied: the currencies of commodity exporters and other economies most exposed to global growth generally fared well. Wednesday’s lower-than-expected US CPI data provided the latest catalyst: the S&P 500 rose around 2% following the CPI report, and the DXY index registered one of its worst days in recent years, falling by more than 1%. Nonetheless, further hawkish comments from FOMC members, weak credit data out of China and today’s strong US consumer confidence survey have provided some support for the greenback. Our sense remains that the dollar rally will resume before too long. It will take a lot more good news on inflation before the Fed changes tack. The minutes from the last FOMC meeting, released next week, and the Jackson Hole conference the week after may well push back further against the notion that the Fed is “pivoting”.

12 August 2022

FX Markets Update

We doubt the Canadian dollar’s resilience will last much longer

The Canadian dollar has held up relatively well against the US dollar so far in 2022, but we think the factors underpinning the loonie’s resilience will fade and push it lower against the greenback over the next couple of years. In view of the wider interest, we are also sending this FX Markets Update to clients of our Canada Service. 

11 August 2022

FX Markets Update

Why we don’t think the dollar has peaked yet

Although we think the end of the Fed’s hiking cycle is drawing nearer and that yields of long-term US Treasuries have already peaked for this cycle, we don’t believe this necessarily spells the end of the dollar bull market. Instead, we expect safe-haven demand to boost the greenback as the global economy weakens.

11 August 2022

Key Forecasts

Dollar falters on continued risk-on rally

FX Markets Weekly Wrap

27 March 2023

Our view

We expect further rises in global government bond yields and renewed falls in equity prices over the coming year. Government bond yields have typically peaked only shortly before the ends of central bank tightening cycles and we expect most major central banks to raise rates significantly over the remainder of this year. We think the increase in government bond yields, as well as a slowdown in global economic growth, will keep risky assets, such as equities and corporate bonds, under pressure. We also expect the worsening risk environment as well as aggressive tightening by the Fed to result in further US dollar appreciation.

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FX Markets Outlook

We think the dollar rally still has further to run

We think the dollar will appreciate further through at least the end of the year as the global economy continues to falter and “safe-haven” demand remains strong. Although we see limited scope for a further widening of expected interest rate differentials in favour of the greenback, we expect an environment in which the Fed and other major central banks continue to tighten monetary policy, even as economic growth slows, to support further dollar strength. We expect risky assets to remain under pressure for some time yet, and we believe that long-term yields have already peaked for this cycle. And previous peaks in the 10-year US Treasury yields have, more often than not, coincided with further dollar appreciation. We think a similar story will play out this time around as safe-haven demand makes the dollar, alongside the yen and the Swiss franc, the best performing currencies over the rest of this year and, probably, some way into 2023.

4 August 2022
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