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Mar 26 - 12:55 AM

HSBC: USD to Rise Towards the Strong End of its Range but No Trigger for a Breakout Yet

By eFXdata  —  Mar 25 - 04:30 PM

Synopsis:

HSBC explores the dynamics influencing G10 currency rates, emphasizing the transition from a singular focus on the Federal Reserve to a broader consideration of global monetary policies. This shift, catalyzed by unexpected moves like the Swiss National Bank's rate cut and the Bank of England's dovish stance, alongside verbal interventions by Japan's Ministry of Finance, highlights a renewed emphasis on relative interest rates. HSBC forecasts that these developments will support the USD's strength within its current range without triggering a significant breakout.

Key Points:

  • Fed's Dominant Influence: Initially, G10 exchange rates, including EUR-USD, closely followed US rate expectations, sidelining other global monetary policy impacts.
  • Shift to Relative Rates: Recent central bank actions, notably the SNB's surprise cut and the BoE's dovish vote, along with the ECB's potential June cut, have redirected attention towards the importance of relative interest rates across economies.
  • Global Central Bank Dynamics: Not all international policy measures signal currency weakening; China's PBOC and Japan's MoF have made moves to prevent their currencies from falling too sharply, underscoring diverse policy directions.
  • Impact on the USD: These varied global monetary policies are expected to maintain the USD at the stronger end of its trading spectrum, although a breakout beyond this range is deemed unlikely.

Conclusion:

HSBC posits that while global monetary policy adjustments are increasingly influencing G10 currency rates, the collective impact of these actions is anticipated to sustain the USD's strength within its established range rather than precipitating a significant departure. This analysis reflects the complex interplay of central bank policies worldwide and their differential effects on currency valuations, suggesting a cautious outlook for the USD amidst evolving global monetary landscapes.

Source:
HSBC Research/Market Commentary

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