The dollar needs a good global growth backdrop to remain well supported. |
The FX market is watching interest rate markets and short- end yields have come off and that's because core CPI was tame. For the dollar to continue to do well, you need interest rate expectations to continue to move in its favor, and with a fair amount of tightening already priced in, that's getting harder and harder. |
The reason the dollar is staying strong is because markets have continued to price in more Fed tightening. |
The yen continued to strengthen this morning at the expense of high yielding currencies such as Australian and New Zealand dollars as well as the US dollar. |
There's more to the dollar weakness this week than just an adjustment in interest rates. |
We see strength in energy-related flows into the country, which underpins the Canadian dollar. |
We suspect that the end of the Fed tightening cycle as policy tightening continues in the key low-yield economies will leave the dollar increasingly exposed to structural vulnerabilities in the second quarter. |
We think it's really too soon to see a definitive change from the BOJ. It's more of a second quarter story. |
While a hike in May remains fully priced, prospects for tightening beyond that have been marked down. |