There is appreciable anxiety on whether the dollar’s current recovery is ensured. Much depends on the Federal Reserve sticking to its projected interest rate path of two further tightenings this year, and the enmity in US-China trade tensions.
If either or both ease, investors are expected to return to the euro, with the ECB progressing along a monetary tightening path. Thus, any weaker dollar would imply that foreign investors were not funding the US deficit.
The pound is likely to weaken further as the clock ticks down to the UK’s EU exit. Investors will also monitor the renminbi for signs the People’s Bank of China is allowing its currency to depreciate intentionally. There is optimism that the less vulnerable parts of EM FX can ride out the strong dollar, particularly when the US congressional mid-term elections are out of the way come November.
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