Fed focus to restore dollar driving power

An important shifts in FX and cross-asset correlations is observed in past two months. 

The FX volatility market still discounts a negative implied correlation, though it is very low on an historical basis. The Fed still has the power to jump back into the driver's seat. For FX markets, this implies that dollar correlations will be restored when the market focuses on the tightening timing again. 

The spike in the realised correlation is likely to normalise, and this should pressure the cheap implied correlation deeper in negative territory as dollar power regains momentum.