News & analysis

The usual summer lull in markets was absent again this year as global recession concerns and the threat of persistently above-target inflation kept both traders and central bankers on their toes. While this ultimately fed into the dollar DXY index, which reached a new multi-decade high, the upward trend in the broad dollar was isolated to the second half of the month. During the first two weeks of August, the dollar mostly traded sideways, albeit with increased volatility as markets continued to digest each piece of economic data to determine the Fed’s next step in September. The difficulty in this was that the data provided conflicting messages. It wasn’t until global recession fears started to re-emerge that the playbook readily used for most of this year came out once again: seek dollar liquidity as a haven play. Looking ahead, Powell’s statement of intent in his Jackson Hole speech has resulted in us upgrading our near-term forecasts to be more bullish on the dollar as we no longer expect the Fed’s downshift to 50bps in September to be as supportive for overall risk conditions. We now look for the strong “no alternative to the US dollar” narrative to crack in early 2023, at which point inflation conditions should have moderated substantially, while growth conditions are likely to rebound. Only then, once both channels fuelling the dollar’s strength have closed—the haven property and US rates differentials—do we expect a structural decline in the greenback.

You can read our September 2022 FX Forecasts report here:



Simon Harvey, Head of FX Analysis
Jay Zhao-Murray, FX Market Analyst


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