Dollar strength wasn’t just a theme over the course of the last month, but for Q1 as a whole. Reflationary dynamics in the US, brought about by a strong vaccination roll-out and additional fiscal stimulus packages, caused FX markets to price in US economic outperformance. While the Federal Reserve managed to temper expectations of earlier policy normalisation in their March meeting, the dollar continues to sit at elevated levels as other nations struggle to ramp up vaccination efforts. News of additional fiscal packages in the US, namely Biden’s infrastructure package, helped keep the dollar at recent highs against G10 FX markets towards month-end, but has the market now set its expectations of the US recovery too high?
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