USD: Risk-on mood and US data weigh on USD dynamics – BBH

US Dollar (USD) is hovering at the top-end of the range carved-out since Friday’s post-NFP low. US stocks are powering forward and dragging global equity markets higher. Expectations of looser Fed policy and resilient global economic activity are fueling the stock market rally. This risk-on backdrop should act as a headwind for USD, especially against cyclical-sensitive currencies, BBH FX analysts report.

Risk-on sentiment and US data pressure USD outlook

"We see no strong dollar bias in today’s US data release. The US merchandise trade deficit (8:30am New York, 1:30pm London) is seen narrowing to -$61.0bn vs. -$71.5bn in May reflecting a decline in imports. It’s worth noting that goods imports collapsed -35.3% q/q in Q2, making trade the main contributor to GDP growth."

"The ISM Services index (10:00am New York, 3:00pm London) is expected to improve to a two-month high at 51.5 in July vs. 50.8 in June. Importantly, the Prices Paid subindex is seen easing 1 point to 66.5 in July but remain indicative of upside risk to inflation, complicating the Fed’s path toward policy easing."

"We also get a fresh update of the Atlanta Fed GDPNow model later today. As of August 1, the model estimates Q3 annualized growth at 2.1%, down from 2.3% on July 31."