November was all about USD strength as multiple factors supported the greenback. Over the initial parts of the month, market implied interest rates turned more aggressive after the release of the October US CPI report, which showed price pressures were drastically more broad-based than before. Towards the end of the month, volatility in markets intensified even further after the discovery of the Omicron variant, which took a major toll on risk sentiment globally and further fueled USD gains. Looking ahead, beyond the new variant threat our forecasts have been adjusted for the likely faster tapering by the Federal Reserve from December’s meeting onwards such that net purchases stop by March 2022, our view that the Fed will hike twice in 2022 but rate adjustments will only occur in H2, a recovery in commodity markets as global growth risks subside, and the fact that inflation is forcing some of the more dovish central banks to signal a policy reaction in their forecast horizons.
You can read our December 2021 FX Forecasts report here:
Simon Harvey, Senior FX Market Analyst
Ima Sammani, FX Market Analyst