UOB Research discusses the USD outlook and sees a scope for its recent gains to extend in Q2 before fizzling out in the second half of the year.
"We keep to our view that this rebound in USD in March is unlikely the start of a sustainable uptrend, at least for the rest of this year. First and foremost, US bond yields - the trigger for this USD resurgence – appears to moderate in intensity after a steep rise across February – March. Also, the Fed is decisively patient to see the US economy through the pandemic before looking to normalize monetary policies. Our macro team expect the Fed to only start discussions of tapering its bond purchases in late-2021/ early-2022, and the first rate hike to only arrive in 2023. As such, the USD still lacks the monetary policy tailwind it need to sustain gains this year," UOB notes.
"Beyond the near-term temporary USD strength in 2Q21, a brighter global growth outlook as the vaccination rollout accelerates means cyclical and risk currencies within the Majors and Asian FX space would regain their footing and strengthen anew against the USD. As such we continue to hold the view of a modestly weaker USD in the coming few quarters after brief strength in the 2Q," UOB adds.