The recent Dollar weakness ...
The recent Dollar weakness is a reflection of financial normalisation but that it is also still consistent with the more aggressive monetary policy stance of the Fed, which pushes the Dollar firmly into the funding camp of increasingly popular carry strategies. Moreover, additional improvements in US macro data recently have been less visible than in other regions of the worlds – in particular EM but also parts of Europe like the UK – supporting the view that the Fed will stick to QE for longer than other key central banks. Therefore the Dollar is expected to remain weak and in fact to weaken slightly further. At the same time we also expect USD money markets to normalise further. And the expected rally in the bond market will likely close the correlation gap between yields and FX from the interest rate side.
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