The trade-weighted US dollar was back to a post-recession high against a basket of 26 currencies on September 2. For now, the most compelling argument for higher interest rates made by the Fed is the resilience of labor markets. Economists at the National Bank of Canada think things are about to change.

Easing of China's "zero COVID" policy to limit USD appreciation

“Full-time employment, meanwhile, has stagnated since the beginning of 2022. This suggests that companies may be on the verge of cutting back on hiring in the coming months. If we are right, the FOMC may soon recognize that the end of US monetary tightening campaign is in sight, a development that could weaken the greenback.”

“An easing of China's ‘zero COVID’ policy would also help limit the appreciation of the US currency.”