The dominant driver of the FX market has recently switched to interest rates from risk appetite. Against this backdrop, USD strength looks toppish over the near term, in the view of economists at HSBC.

Near-term asymmetric downside

“While we think that the USD is likely to be range-bound, we see the balance of risks as skewed to the downside over the next few weeks.”

“As the market focus now seems to be on interest rates, rather than risk appetite, any further upside US data surprises would see a stronger USD. The employment report will be on 10 March and CPI on 14 March (the latter during the Fed’s blackout period); however, given the recent USD rally and hawkish rate expectations, there is likely an asymmetric downside to any dovish surprise.”