1. Developments surrounding the global risk outlook.
As a safe-haven, demand for the Dollar drastically diminished at the latter part of 2021 as the market’s attention shifted away from the pandemic and towards an expected global synchronized recovery and a reflation environment (both of which is usually Dollar negative).
2. The Monetary Policy outlook for the FED.
A persistent bearish factor for USD is the Fed's highly accommodative monetary policy stance as the central bank has made it very clear that they will look past any near-term rise in inflation and continue their current policy for the foreseeable future, until they have seen actual progress in the economy, not forecasted improvement.
3. Factors lessening the pressure on the Dollar.
Even though the bias on the Dollar remains titled lower in the med-term given the outlook for the global economy as well as the FED’s policy stance, there has been numerous positive developments for the USD to pay attention to such as (1) continuously improving yield differentials with the recent push higher in US10Y; (2) continuously improving growth differentials (with the newly announced fiscal stimulus and more expected); (3) policy normalization expectations (even though the FED has kept to their dovish tune the market is not buying the lower-for-longer visage as Eurodollar futures have been steadily implying higher rates for as soon as Dec 2022); (4) unwinding of oversubscribed Dollar short bets (going into the year the short bets on the Dollar was the second largest oversubscribed position in global macro, so the downtrend was always susceptible to some mean reversion. Even though the med-term bias for the Dollar remains titled lower, the outlook has improved, and it’ll be important to monitor the above-mentioned points for their short-term impact on the greenback.
As a safe-haven, demand for the Dollar drastically diminished at the latter part of 2021 as the market’s attention shifted away from the pandemic and towards an expected global synchronized recovery and a reflation environment (both of which is usually Dollar negative).
2. The Monetary Policy outlook for the FED.
A persistent bearish factor for USD is the Fed's highly accommodative monetary policy stance as the central bank has made it very clear that they will look past any near-term rise in inflation and continue their current policy for the foreseeable future, until they have seen actual progress in the economy, not forecasted improvement.
3. Factors lessening the pressure on the Dollar.
Even though the bias on the Dollar remains titled lower in the med-term given the outlook for the global economy as well as the FED’s policy stance, there has been numerous positive developments for the USD to pay attention to such as (1) continuously improving yield differentials with the recent push higher in US10Y; (2) continuously improving growth differentials (with the newly announced fiscal stimulus and more expected); (3) policy normalization expectations (even though the FED has kept to their dovish tune the market is not buying the lower-for-longer visage as Eurodollar futures have been steadily implying higher rates for as soon as Dec 2022); (4) unwinding of oversubscribed Dollar short bets (going into the year the short bets on the Dollar was the second largest oversubscribed position in global macro, so the downtrend was always susceptible to some mean reversion. Even though the med-term bias for the Dollar remains titled lower, the outlook has improved, and it’ll be important to monitor the above-mentioned points for their short-term impact on the greenback.