High inflation continues to be a challenge for major central banks. Recent moves by Russia to cut its gas supplies to Europe indicate that the inflation story could develop further. Labor relations also appear to have worsened of late, with strikes in the UK and Spain, which may increase second-round effects and prolong the process of getting inflation back down to target.

Taking the above factors into consideration, we expect central banks to continue tightening policy over the next few months with the possibility that some move faster to fight inflation. This includes the Fed, which has begun reducing its balance sheet and delivered its largest single-meeting rate hike since 1994 in June, while indicating further hikes were to come. Meanwhile, the ECB is also set to exit negative rates by the end of September. Beyond this time frame, however, there is greater uncertainty, and central bank moves could depend on the extent of the slowdown in growth.

Regarding currencies, the uncertain economic backdrop could drive support for the U.S. dollar, but valuations are expensive, and we are mindful of a possible narrowing in the monetary policy tightening gap between the Fed and other central banks, such as the ECB. In the meantime, we await the pattern of rising interest rates and meaningful upward moves in currencies to emerge before we become more constructive on global currencies.

Overall, the environment remains highly uncertain due to heightened geopolitical risks, persistent high inflation, slowing growth, and a tightening of financial conditions. With markets grappling with a number of different forces, we expect volatility to persist. Against this backdrop, we believe that it's important to retain a flexible approach, which should help us to adapt to changes in market conditions and take advantage of any pricing anomalies and dislocations that might occur in a volatile environment. �