The dollar stayed strong in October but failed to add much to its broad-based rally since July. We think elevated US yields are likely to keep the greenback on the front foot, particularly if risk sentiment continues to deteriorate. However, while we expect the dollar to stay strong in the near term, our view is that it is likely to weaken next year as the Fed shifts to easing policy and Treasury yields fall back amid weakening growth. We also anticipate that a backdrop of falling bond yields across most major economies will underpin a strong rebound in the yen before long. And once the global economy starts to recover and risk sentiment improves, we expect cyclically sensitive (i.e., “high-beta”) currencies across developed and emerging markets to outperform most other major currencies over the next couple of years.
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