US Dollar Index: Expected to overshoot range – BBH

FXStreet Insights Team FXStreet

Brown Brothers Harriman’s (BBH) Elias Haddad notes improving risk sentiment as Iran-related worries ease, with Oil softer, US equities firmer and yields retracing. Haddad argues the US Dollar Index (DXY) can overshoot its 96.00–100.00 range, supported by US rate differentials and resilient US growth, while European Central Bank (ECB) and Bank of England (BoE) expectations are less supportive for the Euro (EUR) and Pound (GBP).

Dollar seen supported by rate spreads

"Improving sentiment tied to the Iran war is driving markets. Crude oil prices are trading on the defensive, US stock futures extended record highs, and long-term bond yields continue to retrace their recent overshoot. USD is a little lower against most major currencies."

"In our view, the dollar index (DXY) can overshoot the upper end of its nearly one year 96.00-100.00 range in line with interest rate differentials between the US and other major economies. Moreover, US rate hike expectations are USD positive because they reflect a resilient US growth backdrop and sticky inflation."

"In contrast, ECB or BOE rate hike expectations are less supportive for EUR and GBP as they reflect a stagflationary mix of high inflation and weak growth."

"Additionally, liquidity and leverage vulnerabilities in the non-bank financial intermediation sector could amplify market stress."

"The ECB May Financial Stability Review does not move the dial on rate expectations. The ECB warned that prolonged geopolitical tensions, along with growing concerns about the sustainability of public finances, increases the risks to financial stability."

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

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD shows resilience below 38.2% Fibo. near mid-0.7100s

The AUD/USD pair touches a one-and-a-half-week low, around the 0.7140 region during the Asian session on Monday, though it lacks follow-through. Spot prices currently trade just above mid-0.7100s, down nearly 0.25% for the day.

USD/JPY: Japanese Yen edges lower vs USD amid Middle East jitters as Fed, BoJ meetings loom

The USD/JPY pair attracts some buyers at the start of a new week and climbs closer to the 154.00 mark during the Asian session, reversing a part of Friday's losses. Spot prices, however, remain confined in a range held over the past week or so and within striking distance of a nearly seven-month low, touched last Tuesday, as traders await this week's key central bank events.

Gold: Fed’s rate decision to drive the next move

Gold reflects a subdued performance at the start of the Federal Reserve’s (Fed) monetary policy week at around $4,330. Fed’s interest rate expectations heavily influenced last week after the release of the hot United States (US) Producer Price Index (PPI) and Consumer Price Index (CPI) reports for August.

Bitcoin consolidates, Ethereum faces hurdle, XRP nears key support

Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) start the week near crucial technical levels after a broadly bearish performance, correcting over 4%, 1.5% and 5% last week. BTC consolidates around $77,600, while ETH approaches key $2,550 resistance. Meanwhile, XRP trades near its key level around $1.354, making this support level crucial for its near-term outlook.

US Dollar Weekly Forecast: The last line of defense

There was no respite to the downward trend for the US Dollar this week, which added to the prior week’s retracement and at some point flirted with the area of four-month lows. Indeed, after trading at levels just shy of its psychological 100.00 barrier early in the month, the US Dollar Index has come all the way down to challenge the 98.50 zone, extending its negative streak for the third month in a row.

Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight

The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.