Last month was a tale of two halves for FX markets. At the start of May, the cross-asset tone was decisively risk-off as markets focused heavily on the need for a more aggressive tightening cycle from the Fed in order to temper inflation pressures. The mixture of higher US rates and lower external growth conditions weighed further on US equities, which in turn called the tune for risk sentiment in FX markets and boosted the dollar. Then, a string of soft US data, especially in relation to the US housing market, changed the tune for risk assets as US rates markets started to price a lower peak in the Fed’s hiking cycle. Looking ahead, we expect conditions in FX markets to remain highly volatile as incoming data adds to the inflation puzzle. In the near-term, we expect global growth concerns and hawkish Fed messaging to keep the dollar well supported before a more structural depreciation in the broad dollar occurs over the medium-term.
You can read our June 2022 FX Forecasts report here:
Simon Harvey, Head of FX Analysis
Jay Zhao-Murray, FX Market Analyst