HSBC Asset Management notes that April’s recovery in risk appetite has coincided with a sharp fall in the US Dollar, leaving year-to-date performance broadly flat and in line with the longer-term dollar-down trend. The bank argues that recent volatility episodes suggest only muted Dollar upside, consistent with a regime shift linked to de-dollarisation and concerns over US fiscal and institutional dynamics.

Dollar-down regime and volatility dynamics

"April’s recovery in risk appetite has coincided with a big drop in the US dollar. This leaves year-to-date performance essentially flat, maintaining the longer-term “dollar-down” trend."

"Given ongoing geopolitical and macro uncertainty, there is a strong chance that market volatility will pick up again. However, March’s market action suggests that any resulting boost to the dollar could be fairly subdued."

"Indeed, the trend over the past couple of years indicates that the dollar remains relatively static during episodes of volatility. This represents a major regime shift."

"It may reflect gradual de-dollarisation, mounting concerns over US public finances and institutional integrity, and a growing belief that the Fed is hamstrung in responding to inflation shocks – a stark contrast to its more aggressive stance in 2022."

"With the broadening out narrative somewhat dependent on sustained dollar weakness, recent market action proves that this scenario remains plausible in 2026."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)