The US dollar has made further gains against most major currencies over the past month or so. Interest rate expectations have continued to pick up in the US and in most places outside Asia, weighing particularly on that region's currencies (prompting another round of intervention from Japan). While that trend may well continue in the near term, we expect bond yields to fall back globally later this year as the policy cycle in the US and other G10 economies turns towards easing. That would help the beleaguered yen (and other Asian currencies) rebound. Meanwhile, signs that global economic activity is picking up suggests the dollar will struggle to make much further headway. Our forecasts imply the dollar will, in aggregate, remain roughly where it is now, a bit stronger against European currencies, and weaker against most Asian ones.
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