USD faces downside risks despite recent stabilization – Danske Bank

FXStreet Insights Team FXStreet

Although the US dollar has found temporary support from equity gains and easing trade tensions, lingering soft data and early signs of labour market weakness suggest the greenback remains vulnerable to a gradual decline, reinforcing a bearish medium-term outlook, Danske Bank's FX analysts report.

EUR/USD dips still offer tactical ruying opportunity

"Despite the USD stabilizing over the past week - supported by a rebound in US equities, better-than-expected US figures and signs that the Trump administration is stepping back from its most aggressive tariff threats - there still appears to be a negative risk premium embedded in the greenback."

"What could drive further USD weakness, assuming trade policy uncertainty has peaked and continues to recede? While US soft data have consistently disappointed, this has yet to fully materialize in the hard data. That said, it may be only a matter of time before the weakness filters through, especially as there are already tentative signs of a softening labour market - despite the solid April NFP print."

"With markets arguably having priced in some degree of slowdown, the next leg lower in the USD is likely to unfold more gradually, barring a fresh policy shock. We remain tactically inclined to buy EUR/USD on dips and maintain our structural bearish USD view."

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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.

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