While cross-asset volatility has been relatively high over the past month, a large proportion of this has been driven by fluctuations in bond markets, where concerns over global growth and inflation conditions are most visible. The gyrations in bond market pricing have been influential for FX markets given that interest rate differentials continue to be the dominant driver of FX price action. However, it is not just rate differentials that have resulted in a stronger dollar over the course of April, but spikes in broader market volatility. Amid these uncertain conditions, the dollar’s safe haven attributes are acutely visible, especially in the context of a stronger US economic backdrop and a perceivably more hawkish Federal Reserve. In response to these developments, we have marked-to-market our April forecasts. In the near-term, given the increased level of uncertainty over the global macroeconomic backdrop, we expect recent dollar strength to persist before a stabilisation in market volatility and a reduction in inflation pressures in H2 result in the greenback trimming gains.
You can read our May 2022 FX Forecasts report here:
Simon Harvey, Head of FX Analysis
Jay Zhao-Murray, FX Market Analyst