USD downside risk increasing
At a Glance
The desk is increasingly concerned about the downside risks to the US dollar, particularly in light of recent developments in monetary policy and trade. Per the full note from MUFG EMEA, the dollar has weakened modestly, slipping less than 1% this week, which may signal a broader trend as the market digests the implications of Stephen Miran's appointment to the Fed Board of Governors. This shift could potentially influence Chair Powell's stance ahead of the upcoming US CPI data release on August 12, which is critical for gauging inflationary pressures and subsequent Fed actions. The desk believes that these factors could lead to further dollar depreciation in the near term.
Key Takeaways
Full Analysis
What the desk is arguing
The risk profile for the dollar is skewing to the downside as recent trends indicate a modest yet persistent weakening. Given the significance of forthcoming CPI data and the implications of Stephen Miran's Fed appointment, market participants should brace for potential volatility that could further impact the dollar's valuation.
Supporting this bearish outlook, the dollar slipped less than 1% this week, signaling broader issues that may persist. Analysts are particularly noting the implications of tariffs implemented this past Thursday, which could dampen economic performance and provide further catalysts for dollar depreciation.
Where it sits in our coverage
Our current consensus target for the USD stands at 1.075, with a trading range anticipated between 1.04 and 1.12. This outlook is somewhat aligned with MUFG's recent analysis, which emphasizes growing concerns around the dollar's strength, particularly in light of external economic influences.
In contrast, other firms are setting varying targets for the upcoming months: - JPMorgan: 1.10 (Mar-26) - Bank of America: 1.04 (Mar-26) - Goldman Sachs: 1.08 (Dec-26) These perspectives illustrate a mix of cautious optimism and skepticism regarding the dollar's short-term resilience.
How other firms see it
Market sentiment is divided, with some firms echoing the bearish stance on the dollar. For instance, Citi expresses concerns around the Fed's tightening policy impacting the dollar's maintenance of value.
Conversely, other firms remain optimistic, positioning for a stronger dollar in the long run despite recent weaknesses. Notably, Nomura and Wells Fargo maintain forecasts aligning with a robust dollar outlook through early 2026. - Citi: bearish outlook - Nomura: bullish outlook - Wells Fargo: bullish outlook
Market Implications
Investors should be alert to the potential for increased volatility in currency markets, particularly in response to evolving economic indicators such as CPI data. A weakening dollar could encourage a shift in capital flows and influence broader market sentiment toward risk assets.
From the original
The dollar weakened again this week, though more modestly - slipping less than 1%. Derek Halpenny, Head of Research, Global Markets EMEA & International Securities, joins James Roulston from FX Institutional Sales to unpack the key themes likely to shape FX moves in the weeks ahe
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