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.
Joseph Marlow Assistant Economist
Continue reading

More from FX Markets

FX Markets Weekly Wrap

Fed guidance could revive the rally in the US dollar

The trade-weighted US dollar seems set to end the week a bit higher, reversing some of its recent decline. But the dollar strength has mostly been against G10 currencies; despite the fall in US equities this week, the “riskier” emerging market (EM) currencies have generally risen. We doubt this pattern will last, as we expect tighter financial conditions from rising US Treasury yields to put renewed pressure on most EM currencies. Indeed, we expect the Fed to signal a rate hike in March and an accelerated pace of quantitative tightening when it announces policy next Wednesday, which could prove the next catalyst for a stronger greenback.

21 January 2022

FX Markets Outlook

We expect the dollar bull market to continue

Although the dollar’s rally has stalled over the past six weeks or so, and may tread water for a while longer, we think that it will ultimately appreciate a bit further this year and next. The key driver of the greenback’s rise since the middle of last year has been the Fed’s increasingly hawkish stance in response to a robust economic recovery and surging inflation pressures in the US. We expect that the Fed will deliver at least as many rate hikes as now discounted in money markets, and a significantly more aggressive pace of “quantitative tightening” than in the previous tightening cycle. In contrast, we think many other central banks will fall short of the pace and/or extent of monetary tightening that investors now appear to expect. In other words, we anticipate that rate differentials will continue to shift in favour of the greenback. We also think that the Fed’s apparent desire to tighten financial conditions in the US (which, if successful, would almost certainly affect global conditions) will continue to keep riskier currencies, especially in emerging markets, under pressure.

20 January 2022

FX Markets Weekly Wrap

We do not expect the recent dollar weakness to last

Despite several events in the US this week which would usually point to a stronger dollar – the highest US inflation print since the early 1980s, hawkish comments from both Chair Powell and Vice Chair Brainard, and a sharp rise in short-dated government bond yields relative to those in most other countries – the greenback fell this week. We think there are several possible explanations, including rising commodity prices, rotation out of the US tech sector, stretched long dollar positioning, and the fact that US money markets have already priced in a fairly aggressive rate path.

14 January 2022

More from Joseph Marlow

Capital Daily

We expect long-dated Treasury yields to rise further still

The 10-year Treasury yield rose to its highest level since June on Friday amid growing concerns about inflation. We forecast that the yield will rise further over the coming years, as investors reassess how much the Federal Reserve will need to tighten policy to keep it under control, or else demand even greater compensation for inflation than they are now.

8 October 2021

FX Markets Update

We think the Norwegian krone’s rally is nearing its end

Although the krone has rallied this year on the back of high energy prices and the expectation of tighter monetary policy, we do not expect this to continue. We think slowing global growth and normalising energy prices will work against the krone over the next 12-18 months. Our view is that these headwinds will be balanced by more hawkish monetary policy, resulting in a broadly stable outlook for the krone. In view of the wider interest, we are also sending this FX Markets Update to clients of our Nordic & Swiss service

7 October 2021

Capital Daily

We doubt the rally in the US dollar is over

Even if the US dollar falls back a bit further in the near term, we expect it to resume its recent rally in due course.

30 September 2021
↑ Back to top