USD: A “healthy” correction, risks are more evenly spread once again – Commerzbank

FXStreet Insights Team FXStreet

After the USD weakness had ended towards the end of last week, Thursday brought a notable correction of what had happened in the first half of the month. Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, analyzes Greenback's outlook.

Impressively precise correction

In addition to the good reasons for USD weakness (the prospect of rate cuts early on next year), there were also bad reasons during the first half of the month: the assumption that there will be only one more Fed rate step rather than two (as had been expected not that long ago).

Why is this second reason ‘bad’ in my view? The reason is bad because a USD carry of 25 bps more or less is not a noteworthy argument for or against the Greenback.

If – as I hope – Thursday’s correction has removed the part of USD weakness that was due to these ‘bad’ reasons this was a ‘healthy’ correction that returned the levels of the USD exchange rates to an even keel to ensure that ahead of the coming week (with the Fed, ECB and BoJ rate decisions) the risks are more evenly spread once again.

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