The FOMC announcement may extend the dollar rally

While the US dollar has fallen back a little against most currencies in the second half of the week as the sharp sell-off in risky assets and currencies on Monday was reversed, it looks set to end the week slightly stronger, continuing its strong run since the June FOMC meeting.
Jonathan Petersen Markets Economist
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FX Markets Weekly Wrap

FX markets likely to remain volatile into year-end

After rallying to its highest level of the year last week, the US dollar seems set to end this week broadly unchanged. In our view, this reflects the offsetting effects of rising short-term yields in the US (particularly after Chair Powell’s comments to Congress on Wednesday) and falling long-term yields amid growing concerns about the Omicron variant. Despite today’s mixed payrolls report, we think the bigger picture remains that sustained inflationary pressures in the US are likely to support faster policy normalisation by the Fed and keep the dollar strong. In addition to uncertainty about the Omicron variant, we expect next week’s CPI data from the US and the wide range of central bank meetings to keep volatility in FX markets elevated throughout December.

3 December 2021

FX Markets Update

We anticipate that the rand will remain weak

The South African rand has rallied over the past few days after reaching its lowest level against the US dollar in more than a year following last week’s news about the Omicron variant. Even if the new variant doesn’t lead to a major round of renewed virus containment measures, we think that the currency will remain under pressure from both domestic and external headwinds for much of 2022. In view of the wider interest, we are also sending this FX Markets Update to clients of our Africa Economics Service

1 December 2021

FX Markets Weekly Wrap

COVID throws another curveball

News late yesterday of a new and potentially more dangerous variant of COVID-19 emerging in South Africa has made a dramatic impact on financial markets today. In general, market shifts have been similar to those in previous periods of renewed uncertainty around the path of the pandemic. Risky assets and currencies have fallen across the board today, while bond yields have dropped sharply and safe havens – notably the yen – have rallied. Short-term rate expectations, which had risen significantly in the US and other DMs over recent months, have been pared back rapidly.

26 November 2021

More from Jonathan Petersen

Capital Daily

We expect EM currencies to remain under pressure

We doubt that today’s rebound in emerging market currencies marks the start of a renewed rally and expect them to continue to depreciate against the US dollar over the next few years.

21 July 2021

Capital Daily

Investor positioning may be one factor behind the fall in yields

Changes in investor positioning may help to explain some of the decline in 10-year US Treasury yields recently, as a large speculative net short position had built up in Q1. But we still think that the broader backdrop points to yields rising gradually over the next few years.

16 July 2021

Capital Daily

Rising US Treasury yields likely to drive DM bond yields higher

We continue to expect that a continued global economic recovery and high US inflation will cause US Treasury yields to rise and push long-term government bond yields in most other developed markets.

14 July 2021
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