The US Dollar (USD) is limping into the end of the week and the end of the month. Intraday trends across the major currencies are mixed but the Dollar Index (DXY) itself is still tracking a little lower overall on the day for a (so far) fifth consecutive daily drop. Stocks are positive, with the S&P 500 a point of so off the February high amid optimism on trade talks, Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret report.
USD trades mixed to lower
“Commerce Sec. Lutnick said a US/China trade ‘framework’ agreement was signed two days ago and other deals would follow shortly but an arrangement with Europe might take more time. The USD is unimpressed. The litany of headwinds for the USD—the White House potentially meddling in Fed policy, near-term risks tilting towards more Fed easing, worries about the impact of US fiscal policy, portfolio outflows because of all of the above, bearish USD technicals, negative USD seasonal trends and (more immediately) chatter of negative month-end USD flows—rather suggest a difficult summer ahead for the USD.
“The minor rebound in the USD amid the flare up of Middle East tensions perhaps gave investors a sense that the USD slide was slowing or even reversing. BBDXY risk reversals strengthened but have since repriced to reflect a renewed bid for dollar puts over calls. We think risks are tilted squarely towards more immediate and significant dollar losses. The FOMC consensus remains cool on July but speculation of rate cuts will intensify if the run of US data continues to disappoint. Today’s data reports are expected to reflect mild gains in both Personal Income and Spending for May.”
“Core PCE data is expected to rise 0.1% in the month but strengthen modestly to 2.6% in the year. Final Michigan confidence data may include a mild upward revision to still very elevated consumer expectations for inflation in the next 12 months. Intraday trends suggest a consolidation in the DXY ahead of renewed losses (bearish on a break under support at 97.00). Resistance is 97.45 and (stronger at 97.65). We continue to think the DXY is heading for a drop to the 90/95 range in the coming months.”
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