US Dollar: Softer data challenges resilience – MUFG

MUFG’s Derek Halpenny and Lee Hardman note that weaker United States (US) data and lower short-term Treasury yields are undermining US Dollar (USD) support, even as the US Dollar Index (DXY) holds above its 200-day moving average near 99.200. They highlight softer retail sales, Nonfarm Payrolls (NFP) and Consumer Price Index (CPI), reduced Federal Reserve (Fed) hike pricing, and expect the Dollar to weaken modestly heading into next year.

Softer data weigh on Dollar outlook

"The steeping of the US yield curve driven by the move lower for short-term US yields is creating an unfavourable backdrop for US dollar performance although it has not been sufficient yet to trigger another leg lower for the dollar index so far this month."

"The dollar index has not yet tested support from the 200-day moving average which comes in at around 99.200."

"The run of softer US economic data has encouraged market participants to scale back Fed rate hike expectations."

"On 24th July, the US rates market was pricing in around 57bps of Fed hikes by April of next year including a hike in September which was fully priced."

"Overall, recent developments are supportive of our forecasts for the US dollar to re-weaken modestly heading into next year."

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