Crosswinds continue in currency markets

The US dollar has rebounded in recent weeks as resilient US economic data and renewed hawkish noises from the FOMC have revived the “higher for longer” narrative, shifting relative interest rate expectations back in favour of the US. There is probably some scope for that trend to continue in the near term, but we continue to think the more likely scenario is that slowing growth and deteriorating risk sentiment (rather than interest rate differentials) end up driving the dollar higher in the second half of the year.