TD on the state of play in FX
Equity flows are an increasingly large driver of the FX market, something TD touches on today:
"Global equity benchmarks, like MSCI World and the US, hold hefty premiums to growth drivers, leaving risk assets vulnerable to a shift in sentiment. That's also the reflection of the currency market where the BDXY has lost about 5% off the highs," TD notes.
"Excessive valuations are not a reason to sell. Still, they should be monitored in case of a narrative shift, given the drawdown potential if the news cycle goes sour. The other side of this is the weaker USD, which has mirrored the moves in risk assets. This backdrop leaves us expecting further consolidation in the buck as we progress through Q2, especially against European currencies like EUR and GBP," TD adds.
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