News & analysis

Last month we highlighted that the sources of dollar appreciation had broadened as the risk-off channel opened, with equities trading under substantial pressure from higher yields. While the outbreak of war within the Middle East exacerbated this, the dollar failed to continue appreciating after an initial surge at the beginning of the month which saw the DXY index break through 107 to hit fresh year-to-date highs. Despite the previous drivers of the dollar’s rapid rally remaining in place, the greenback’s inability to continue rallying seemed counterintuitive on a surface level. However, we think the range bound nature of the dollar can largely be explained by three factors. First, Treasury yields appeared to hit a ceiling, producing relative stability in most DM real rate spreads, and keeping USD appreciation contained. Second, Asian central bank intervention has also been a restrictive factor too, with both the BoJ and PBoC effectively implementing soft dollar pegs for the yen and yuan at 150 and 7.30 against the dollar respectively. Third, signs that the US exceptionalism narrative may begin to wane are also helping to prevent a dollar breakout, though we see this as a little premature at present.

At first glance, November looks like it could bring much of the same, with the dollar’s path higher set to remain stymied at least in part by rate dynamics and a PBoC intent on staving off further currency depreciation. Moreover, with DM inflation unlikely to return to central bank targets until mid-2024 and most hiking cycles on hold for an extended period, there is a risk that volatility subsides further as markets assess incoming data against the respective monetary policy stances. Ultimately this should leave FX markets trading in tight ranges over a tactical horizon once again, with idiosyncratic developments largely playing out on crosses as they did last month. Nevertheless, despite these prohibitive factors, we still see further appreciation for the greenback in the coming month as there remains a prominent risk that the eurozone falls into recession under excessive monetary tightening and the Bank of Japan allows further, albeit marginal, yen depreciation.

You can read our November 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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