The strong nonfarm payrolls report released earlier today broke the recent streak of downward data surprises out of the US and has renewed strength in the dollar. Even so, the greenback looks set to end the week only somewhat stronger against most currencies, despite the ECB and BoC joining the G10 easing cycle. In our view, this low volatility in FX markets is set to persist, as we anticipate continued falls in inflation in most major economies amid a benign global growth backdrop, leaving little scope for major divergences in monetary policy between the Fed and other central banks. That said, we expect the Fed’s latest “dot plot” next week to show a somewhat more hawkish policy rate path, which will probably keep the dollar on the front foot against most major currencies in the near term.
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