From Société Générale's weekly FX outlook, updated currency forecasts and comments

In summary:

Familiar FX/rate/volatility correlations are failing as the global economy moves out of the post-financial-crisis phase of absurdly cheap money.

  • The combination of rising US yields, rising equities and a falling dollar reflects a more synchronised global recovery that is luring money away from the dollar, something we last saw for a sustained period in 2004-2007.
  • What started then as optimism about the global recovery after the Asian crisis ended, of course, in hype, hubris and excess. Hopefully, we'll not get to that stage again.

We've updated our G10FX forecasts.

  • We look for a slower pace of dollar decline, with the DXY reaching 85 in a year's time, a 5% fall from current levels.
  • We think a further 6% euro appreciation will take the dollar back to levels last seen in 2014, and that USD/JPY will make a sharp move lower in 2019/2020 but not in 2018.