HSBC: Interpretation of the Fed's political leanings could determine the direction of the dollar

Paul Mackel, global head of FX research at HSBC, said the direction of the dollar could depend on the market's interpretation of the Fed's political leanings. There are uncertainties about the Fed's next monetary policy move and who will be the next Fed chair. If the Fed can gradually cut interest rates, it will support HSBC's core view that the dollar will gradually weaken against multiple currencies. However, if markets start to worry about political interference by the Fed, the dollar could move differently, depending on changes in cross-asset volatility and the movement of long-term US bond yields. In a bad situation, the dollar could initially weaken against core currencies such as the euro, yen, Swiss franc and renminbi.