News & analysis

After one round of US data, markets aggressively shifted their pricing for the Fed to sit in line with the central bank’s December dot plot.  On the whole, higher nominal US rates and increased volatility in fixed-income markets spurred broad dollar strength in February. As we enter the pre-FOMC period in March with key payrolls and CPI data out in the first few weeks, markets are arguably positioned for another strong round of data to take the implied terminal rate higher after they were caught off-guard in February. However, we are more cynical that the data can live up to these expectations, especially after January’s releases were contaminated by one-off distortions such as pandemic effects and re-weightings. We, therefore, look for a reversal in some of February’s price action on the back of reduced upside risk to US rates and potentially reduced volatility within the space. However, our conviction over this base case remains lower than usual. There remains a non-negligible risk that stronger US data forces the Fed to signal an extension to their hiking cycle in the March dot plot. In our view, this would spark non-discriminatory dollar strength, similar to that seen throughout parts of 2022. 

You can read our March 2023 FX Forecasts report here:




Simon Harvey, Head of FX Analysis

Jay Zhao-Murray, FX Market Analyst

María Marcos, FX Market Analyst

Nick Rees, FX Market Analyst


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