USD Update: Defiant dollar in Q4

Developments since our Q3 USD outlook have kept the broad US dollar elevated as the upside risks to our mildly bearish stance materialised. In the third quarter, supply chain disruption and increasing Covid cases in parts of the world due to the Delta variant weighed on global growth conditions, while rising inflation pressures added to the deterioration in risk sentiment. Meanwhile, a string of net hawkish FOMC meetings combined with the inflationary backdrop and led to the US Treasury curve bear steepening. Amid the global backdrop of lower growth and higher inflation, the dollar is likely to stay well bid in Q4. However, our latest forecasts now see the DXY index trading a percentage point lower than current spot levels and back towards highs of its previous trading range as the aggressive repricing in FX markets overextended in early October given our views on back-end US rates this year.

You can read our October USD Update here:

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Author: Simon Harvey, Senior FX Market Analyst

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