The US dollar has fallen back across the board in May as expected interest rate differentials have shifted against the US vis-à-vis many other economies, and risk sentiment has recovered. Overall, the greenback remains caught in something of a crosswind. The US economy, and stock market, remains in rude health and expectations of Fed cuts have faded further, which supports the dollar. At the same time, signs of improving economic activity elsewhere and continued robust risk sentiment act in the opposite direction. Our sense is that the dollar will remain rangebound this year. Our forecasts is the dollar will strengthen a bit against most European currencies but weaken against most Asian ones, as interest rate expectations and bond yields drop back across most advanced and emerging economies.
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