FXStreet reports that in the view of economists at HSBC, higher shorter-dated US rates or a more significant global slowdown would be the key catalysts for the USD to strengthen more meaningfully.

“When the FX market is focused on the Federal Reserve’s (Fed) policy tightening, the USD should mostly exhibit pro-cyclical behaviour – strengthening when US data is good and weakening otherwise. Nevertheless, the USD is still not behaving like this. Thus, we are in the last stretch of the USD’s cyclical decline that started in April 2020, and remain less convinced that its turning point has now been reached.”

“To be clear, we are debating when the USD’s cyclical decline will end, rather than refuting the ending. Our long-standing view has focused on the actual start of the Fed’s tapering being supportive for the USD, although this should have greater meaning for the G10 than emerging markets (EM) FX, especially those major central banks that could be expanding their balance sheets in contrast to the Fed.”