The US dollar has remained rangebound against most other major currencies in July, even as expected interest rates have fallen sharply in the US in the wake of softer inflation and employment data. That reflects falling interest rate expectations elsewhere and, more recently, worsening risk appetite helping the greenback. The big winner has been the yen, which has rallied sharply as yields elsewhere have plummeted; our sense is that it could rise further still – the BoJ is now an outlier in tightening policy. For now, our base case remains a soft landing in the US, which at this point implies a bit of a rebound in US rate expectations. In turn, that would suggest the dollar will strengthen a bit against most European currencies, but probably still weaken against most Asian ones as the global easing cycle continues and the FOMC cut the fed funds rate in September.
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