Fading Dollar weakness
The market is beginning to take risk in its stride once again. We can see that from benchmark equity indices retracing all time highs, particularly cross border asset baskets. Realised volatility within FX and fixed income is coming in below implied volatility and in turn reducing the cost of optionality. There remains significant tariff risk due to the expiry of key temporary trade war truces drawing ever nearer. The market was very welcoming therefore of news that talks between the US and China would commence in London yesterday.
The logic in markets is that there must be scope for a deal if both nations are willing to sit at the negotiating table. Meeting in St James’ Lancaster House, there was no information published yesterday regarding the progress (or lack thereof) made during the talks. The market would most likely be content with an outcome that sees the temporary Geneva trade war truce made permanent. Any improvement from this base case would see equities outperform and allow the Dollar to normalise.
With the Fed now in a blackout period prior to its next monetary policy meeting next week, markets will continue to be sensitive to any trade related headlines. Wednesday’s CPI publication will be the data highlight this week following a strong US non-farm payrolls report last week. Against this background, baring a weak CPI report or abandoned US/China trade talks, traders are likely to fade Dollar weakness and buy on dips so long as sanguine expectations continue to dominate flows.
Discussion and Analysis by Charles Porter
Related Insights
Daily Brief – On course for Warsh?
Charles Porter
Thu 19 Mar 2026
On course for Warsh? The latest Federal Reserve decision concluded last night. Mirroring the prior decision, the FOMC voted to keep policy rates on hold within a band of 3.5-3.75%. Ordinarily, yesterday’s meeting could have been a lesser-event. After all, with the arrival of Chair Jay Powell’s successor on May 15th, this could have been […]
Daily Brief – Where’s the Beta
Charles Porter
Thu 12 Mar 2026
Where’s the Beta Amongst FX, there exist currencies known as ‘commodity currencies’. This isn’t a fixed basket of currencies, however, particular candidates spring to mind when the group are mentioned. The foremost amongst the G10 are the Canadian, Australian and New Zealand Dollars. These currencies are so-called because they typically exhibit a positive correlation with […]
Daily Brief – The only way is $
Charles Porter
Tue 17 Mar 2026
The only way is $ The Dollar has served as the first-choice safe haven currency during this latest bout of geopolitical risk. Safe havens need to exhibit lower levels of volatility during times of elevated risk and, on balance, exhibit a negative price correlation with perceived risk. As geopolitical risk was on the rise over […]
