The ongoing geopolitical uncertainties and the downside risks to global growth drive USD higher and the risk of a near-term overshoot is high, in the view of economists at HSBC

Fed’s policy normalisation may not provide further support for the USD

“The tailwinds to the USD are coming from two interconnected features, namely, the ongoing geopolitical uncertainties and the downside risks to global growth. The first is obvious, and the second is quickly gaining traction, given the spike in energy prices.”

“There is little sign that the USD is set to stabilise and, hence, the risk of a near-term overshoot is high.”

“The Fed’s policy normalisation may be less impactful on the USD, as short-term rate hike expectations and the market’s pricing of the Fed’s terminal rate converged.”