Fixed Income Research & Macro Strategy (FIRMS) – 4X Global Research

  • The US Dollar Nominal Effective Exchange Rate (NEER) traded in a narrow range of 1.8% between late-2020 and early March, according to our estimates. The Dollar then embarked on a 3-4 week rally, driven by rising US Treasury yields, the stretched valuations of other major currencies and still tepid global economic activity.
  • Since end-March the Dollar NEER has depreciated 1.8% to a 7-week low. Stronger US economic growth – fuelled in part by the government’s $1.9 trn coronavirus relief package – alongside lower US yields across the maturity spectrum and rising US and global equities have weighed on the “safe-haven” Dollar’s relative attractiveness.



  • Global FX volatility has remained subdued and well below its 10-year average. However, the performance of major currencies has, unlike in November-December, been far from even.
  • In particular, Non-Japan Asian currencies have underperformed which we attribute in part to NJA central banks’ more pro-active management of their currencies.
  • This timeline, its drivers and the relative performance of the Dollar and major currencies, including in the emerging market space, have been in line with our expectations (see Forecast review: USD, CNY, EM & global growth, 21st December 2020, Dollar – Diversification, rotation and valuations, 18th January 2021, Dllar’s recent weakness – Blip, not new trend, 12th February 2021 and US and UK: The Comeback Kids, 5th March 2021).
  • Further US Dollar depreciation in weeks ahead, in our view, remains conditional on both:
  1. i) The ability of a dovish Federal Reserve and FOMC members to further jawbone lower or at the very least cap US Treasury yields; and
  2. ii) Global macro indicators continuing to point to a pick-up in economic growth.
  • Our core scenario is that the Dollar will indeed lose further ground but that the performance of other major currencies will be conditioned by powerful, often inter-related domestic factors and thus remain far from uniform.

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4X Global Research is a London-based consultancy providing institutional and corporate clients with focused, actionable, independent and connected research on Emerging and G20 fixed income and FX markets and economies.

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Ryan Littlestone

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