USD: Conflict endgame risks point to renewed weakness – MUFG
|MUFG’s Head of Research Derek Halpenny argues that while risk sentiment has improved on hopes the US will soon end its conflict with Iran, the recovery looks fragile and the US Dollar is likely to weaken again. He highlights ongoing geopolitical uncertainty, energy supply doubts, rising US fiscal and inflation risks, and falling foreign holdings of Treasuries as factors consistent with MUFG’s Dollar depreciation forecasts.
Risk rebound seen as fragile
"There is certainly a logic to this rebound in risk on renewed optimism but there are numerous questions that remain unanswered over how this conflict will evolve over the coming weeks."
"So, the recovery in risk is likely to remain fragile with doubts set to return over the improvement in energy supply conditions."
"Fiscal risks are set to worsen and the whole topic of confidence in US assets is likely to re-emerge in the period following an end to this conflict that likely means a quick reversal of recent US dollar strength and the resumption of the trend of US dollar depreciation."
"The decision to attack Iran will leave the region extremely unstable and inflation risks will likely continue to undermine the Trump administration ahead of the mid-terms in November."
"What we would say though in relation to FX is that the US dollar will look even more vulnerable following this conflict (again if it ends like being suggested)."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.