Economists at MUFG Bank had expected the dollar to finish Q1 stronger. Thus, limited USD strength in March may be a signal of a turn. 

Fed action more than priced reflecting hawkish rhetoric

“This tightening cycle is already extraordinary given the 2s10s is close to inverting with only one rate hike undertaken but we would still argue that the scope for the 2yr to increase much further is limited now which will leave the US dollar more vulnerable to downside risks.”

“With QT set to commence, it is likely to take some onus away from higher rates. Historic DXY performance after the first rate hike is clear – the dollar weakens.”

“The appetite of market participants to buy into equity market weakness remains and in sharp contrast to the high level of volatility in the rates market, the VIX fell sharply toward month-end to 19.0 – below the average over the period since the start of 2021. This divergence in volatility in rates and equities can’t be sustained and we expect rates vol to subside after the incredible Q1, which should weigh on USD.”

“The limited scale of strength versus EUR in circumstances of risks related to Ukraine and the huge move higher in US yields suggest to us that we may now be at a turning point. We now expect the dollar to stabilise in Q2 and then weaken more notably in the second half of the year.”