US Dollar: Breakout risks versus fading outlook – Societe Generale

Societe Generale’s Kit Juckes argues that while the longer-term outlook for the Dollar is deteriorating due to US politics and changing global savings patterns, the short-term picture remains constructive. Strong US data and higher inflation could push the Dollar Index toward its 2026 highs and drive EUR/USD to fresh lows, even as structural headwinds build.

Short-term strength, longer-term headwinds

"The longer-term (two- to ten-year) outlook is becoming less dollar-friendly. The midterm elections may make it difficult for President Trump to maintain the accommodative fiscal policies that have supported both the economy and the dollar. The world's major savings economies are saving less than they once did, while the US is having to pay more to attract the investment it needs."

"However, the short-term outlook for the dollar is certainly not negative. Energy importers remain under pressure: the yen has yet to benefit from tighter monetary policy, and the euro has been unable to gain support from upgrades to growth expectations. Meanwhile, the US economy is showing few signs of a meaningful slowdown."

"The US data calendar includes JOLTS, ADP employment, personal income and spending, trade, ISM surveys, and labour market data. There is a chance that the August core PCE deflator will come in higher, at 3.4%, amid a flurry of stronger inflation prints elsewhere. Higher inflation and resilient real-economy data could propel the Dollar Index to a near-2026 high (just 0.7% away) or push EUR/USD to a new low (only 0.5% away)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)