Based on Mazen Issa, senior FX strategist at TD Securities, the important thing pillars of divergence that supported the USD this yr – macro, coverage and asset costs – at the moment are on a shaky footing.
“The Fed has lowered its dot plot and terminal charge whereas flagging considerations over world developments.”
“This returns the main focus to charge spreads as a G10FX driver going ahead. The USD’s correlation is reverting extra decisively in direction of charges and away from fairness efficiency.”
“Equities nonetheless matter for FX, however these may have a differentiated affect. We predict market sentiment won’t enhance amid a extra cautious Fed. Unresolved commerce disputes and an more and more poisonous US political local weather counsel additional danger discount is probably going.”