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Another record week for the S&P 500 on Wall Street[1] was met with subdued volatility around the major currencies. The signing of the US-China “phase one” trade agreement was arguably the most significant event. Doubts remain over future talks due to this year’s U.S. presidential election. Around $360b in tariffs are still in place against the world’s second-largest economy.

The US Dollar[2] outperformed against the majority of G10 FX over the past 5 trading days, with only the Swiss Franc[3] seeing better returns on the whole. The Greenback’s relatively high yield appears to be sapping some of the potential returns from the “pro-risk” Australian and New Zealand Dollars. Understandably, the anti-risk Japanese Yen[4] finished last week on a soft note.

The days ahead are filled with key event risk even though U.S. markets will be offline on Monday. The Japanese Yen, Canadian Dollar[5] and Euro[6] face a slew of central bank rate decision: the Bank of Japan (BoJ), the Bank of Canada (BoC) and the European Central Bank (ECB). FX investors may be waiting to see how a shift in sentiment can impact the road ahead for interest rates.

Outside of monetary policy, the International Monetary Fund (IMF) releases the latest world economic outlook. In Davos, political leaders from around the globe attend the World Economic Forum. Will these be able to restore volatility in foreign exchange markets? Or will they continue diverging with the overall trajectory for sentiment?

Fundamental Forecasts

US Dollar Faces Bearish Fundamental Headwinds from the Fed & Trade[7]

Fundamental outlook for the US Dollar remains unfavorable considering the Fed plans to keep inflating its balance sheet while markets grow exuberant and frothy amid

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