The US Dollar’s recent rebound suffered a setback on Friday triggered by the release of the weaker-than-expected NFP report for July. Economists at MUFG Bank analyze Greenback’s outlook.
Is the USD rebound running out of steam?
The USD has derived more support over the past week from the ongoing adjustment higher in long-term US yields and more risk-off trading conditions that have weighed more heavily on popular EM carry currencies.
The recent surprise decision from the BoJ to adjust YCC and Fitch’s decision to downgrade the US credit rating have triggered a pick-up in FX market volatility at the start of the summer period. While these recent developments have helped the USD to rebound, we are not convinced the move will prove sustainable.
The release of the weaker NFP report for July and the release this week of the US CPI report for July should solidify expectations that the Fed will not need to raise rates further this year and help to re-weaken the US Dollar.
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