FX strategy and dollar outlook (with Yvonne Man, Stephen Engle)

4/17/2026 3:01:43 PM	medium term cautious down	21 days later	-0.11%	+0.06%
1/27/2026 1:16:36 AM	medium term cautious down	20 days later	+0.74%	-0.37%
9/17/2025 4:38:45 PM	long term cautious down	60 days later	+2.30%	-1.15%
9/3/2025 5:31:38 PM	short term sharp down	5 days later	-0.57%	+0.85%

With higher rates, is the best expression still remaining in the dollar?

Yvonne Man

Darcin

The trade we like is to be paid front-end rates in the US. If front-end US rates go up, the dollar should strengthen. However, DXY is still within the range of the past year (114-120 for EUR/USD). There is reluctance to pile into the trade near 114. Our forecast is 114 for Q2, and if we break through, there could be more downside for EUR/USD.

Asian currencies are under fire. Korean officials are jawboning, Japan is at 160. At what point does jawboning not work and intervention becomes key?

Stephen Engle

Darcin

Both Korea and Japan have large structural outflows from the household/retail sector. That's why policy intervention has not been very effective. Some policy credibility has been lost - USD/KRW through 1500, USD/JPY back at 160 after the biggest intervention in a decade. These currencies are weakening due to external factors beyond policymakers' control.

Are they forced to keep hiking rates?

Yvonne Man

Darcin

Yield compression helps at some point, but we are not there yet. Indonesia hiked 50bp and the currency is still weak. In some ways you have to accommodate weaker currencies - control volatility but don't defend specific levels.

What about the RMB? Do you see it gaining or losing momentum?

Stephen Engle

Darcin

We have been bullish on RMB. It has done well versus peers. We expect it to move to 6.70 eventually. But the next couple of months could be tricky due to dollar strength, dividend repatriation season creating FX demand, and China being cautious on fixing ahead of the Xi-Trump meeting in September.

Medium to long term, China is less mercantilist and there are benefits to a stronger currency (less capital outflow, RMB internationalization). But near-term, being long RMB is negative carry.

Does higher-for-longer rates change the playbook on carry trades?

Yvonne Man

Darcin

We have seen a bit of correction. 70% of our equity indicators are flashing red. If the equity sell-off continues, FX volatility will increase and carry trades will be under pressure. The most popular carry trade (Brazil) is already unwinding. In G10, the Australian dollar is seeing less appetite. It's not wholesale pressure yet, but it is a risk if the equity correction continues.

What is your outlook on Europe?

Stephen Engle

Darcin

The general sense from European investors and corporates is that the euro is more likely to weaken than strengthen. The ECB is going to hike this week and might hike again, but it's not benefiting the currency because rate hikes are viewed as a policy mistake that will have to be unwound with rate cuts next year.

Rate hikes are being priced in, the rate gap is narrowing, yet the euro is not benefiting.

What about the pound with all the political noise?

Yvonne Man

Darcin

The pound has been pretty resilient. We are long pound versus euro (short EUR/GBP). We see a lot of risk premium/bad news already priced in when we look at FX options. A lot of risks are not going away, but we favor being tactically long pound.

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