FX Markets

FX Markets Weekly Wrap

US dollar falls back as Treasury yields edge down

The US dollar seems set to end the week lower against most currencies, as “risky” assets have rallied and US Treasury yields have edged down a bit. This fall back in the dollar and US yields is somewhat surprising in light of the stronger-than-expected inflation data released Wednesday. But we think those data add to evidence that inflationary pressures in the US remain strong, and will gradually push Treasury yields, and the dollar, higher. And while this week’s rebound in risky assets suggests that concerns about the global economic recovery are fading, the latest activity data from China and the US (due on Monday) are likely to set the tone for FX markets next week.

15 October 2021

FX Markets Update

We don’t expect tapering to be a key driver of the US dollar

We doubt that the direct effects of the tapering of the Fed’s asset purchases will have much of an impact on the US dollar, and think that other factors will be more important in pushing the greenback higher.

15 October 2021

FX Markets Update

We expect the rally in commodity currencies to be short-lived

Although we wouldn’t be surprised if energy prices remained elevated for a while, we still think they will fall back over the next year, weighing on the currencies of net energy exporters.

14 October 2021

Key Forecasts

DM

2021

2022

2023

EM

2021

2022

2023

DXY

94.97

95.15

92.35

USD/CNY

6.60

6.90

6.70

EUR/USD

1.15

1.15

1.20

USD/INR

75.00

76.00

77.00

USD/JPY

115.0

115.0

115.0

USD/RUB

74.00

76.00

76.00

GBP/USD

1.35

1.35

1.40

USD/BRL

5.50

6.00

6.00

USD/CAD

1.25

1.28

1.32

USD/MXN

20.50

21.50

21.50

AUD/USD

0.72

0.70

0.70

USD/ZAR

15.25

16.50

16.00

Sources: Refinitiv, CE; all values are year-end forecasts


US dollar falls back as Treasury yields edge down

FX Markets Weekly Wrap

17 October 2021

Our view

We forecast that long-term bond yields will rise across most major economies and especially in the US, where we think inflationary pressures are particularly strong. Otherwise, we think that the returns from most risky assets from here will be far less impressive than they have been since the spring of last year. That reflects not only a view that bond yields will climb further, but also how we see limited room for global growth to surprise on the upside and how, in many cases, valuations already appear quite stretched. Meanwhile, we think that the US dollar will grind higher from here on the back of a hawkish shift by the Fed relative to most other major central banks, and ongoing uncertainty around the strength of the global recovery.

Latest Outlook

FX Markets Outlook

We think the dollar’s summer rally may resume

Although it has fallen back a bit over the past three weeks, the dollar has been on the front foot for much of the summer and we think it will make some further headway over the next few months. In part, the dollar’s strength in the past three months overall has been the result of safe-haven flows driven by renewed concerns about the spread of new variants of COVID-19 and, perhaps, the uncertainty around China’s slowing economy and problems in its financial system. More importantly, the Fed’s hawkish pivot at the June FOMC meeting highlighted the strength of the US recovery and pointed to a relatively rapid pace of monetary policy normalisation (at least when compared to the standards of other major economies). While the economic data have been somewhat mixed since then, we continue to think that interest rate differentials will provide further support for the dollar, in particular vis-à-vis the euro, yen, and renminbi. CE Spotlight 2021: The Rebirth Of Inflation? We’re holding a week of online events from 27th September to accompany our special research series. Event details and registration here.  

10 September 2021