USD: Key pillars of divergence on shaky ground - TDS
According to Mazen Issa, senior FX strategist at TD Securities, the key pillars of divergence that supported the USD this year - macro, policy and asset prices - are now on a shaky footing.
“The Fed has lowered its dot plot and terminal rate while flagging concerns over global developments.”
“This returns the focus to rate spreads as a G10FX driver going forward. The USD's correlation is reverting more decisively towards rates and away from equity performance.”
“Equities still matter for FX, but these will have a differentiated impact. We think market sentiment will not improve amid a more cautious Fed. Unresolved trade disputes and an increasingly toxic US political climate suggest further risk reduction is likely.”