We think the dollar’s summer rally may resume

Although it has fallen back a bit over the past three weeks, the dollar has been on the front foot for much of the summer and we think it will make some further headway over the next few months. In part, the dollar’s strength in the past three months overall has been the result of safe-haven flows driven by renewed concerns about the spread of new variants of COVID-19 and, perhaps, the uncertainty around China’s slowing economy and problems in its financial system. More importantly, the Fed’s hawkish pivot at the June FOMC meeting highlighted the strength of the US recovery and pointed to a relatively rapid pace of monetary policy normalisation (at least when compared to the standards of other major economies). While the economic data have been somewhat mixed since then, we continue to think that interest rate differentials will provide further support for the dollar, in particular vis-à-vis the euro, yen, and renminbi. CE Spotlight 2021: The Rebirth Of Inflation? We’re holding a week of online events from 27^th September to accompany our special research series. Event details and registration here.