We think the dollar rally has paused, not ended

Amid mounting concerns about the global growth outlook as more central banks raised policy rates, the US dollar looks set to end the week broadly unchanged against most major currencies. Although we suspect the greenback may struggle to make new highs in the near-term, we think the backdrop will remain favourable for the dollar over the coming quarters. If, as we anticipate, the US (and global) economy slows, but avoids recession, we think the US will remain relatively well-placed to weather tighter financial conditions. And if downside risks to economic activity materialise, then the dollar would probably benefit from “safe-haven” demand, as has been the case for much of this year.