Vols down and dirty
We are now entering a phase where official forces are more apparent in
the FX market. With authorities intervening through different means,
dirty floats and lower volatility for exchange rates may become the
order of the day. This summer we do not expect a repeat of the volatility
seen this time last year.
Why economic recovery will not boost the dollar
The view that the US economy will be quicker to recover from the
current downturn than other major economies, and thereby boosting the
dollar, has some appeal. However, in the current environment, this
relationship does not seem to hold and it seems more likely that a
stronger US recovery will be associated with a weaker dollar.
A curveball for the USD
The relationship between the US yield curve and the USD is
complicated, but the added complication of QE makes the interpretation
of this relationship even less clear. Do not be fooled by the illusion of
the US curve dynamics and the USD.