US Dollar: Policy crosscurrents shape outlook – OCBC

OCBC’s Sim Moh Siong and Christopher Wong highlight that renewed policy uncertainty and Federal Reserve (Fed) reaction risks are constraining US Dollar (USD) gains, even as higher US real yields and a resilient US economy limit downside. They stay neutral on the Dollar over the next one to two quarters, watching Fed credibility, Jackson Hole guidance and inflation-fighting commitment.

Dollar steadies as policy risks build

"Renewed policy uncertainty is constraining the scope for USD gains and puts our moderately constructive USD view over the next one to two quarters at risk."

"That said, rising real yields, driven by AI-related investment demand competing with heavy government borrowing, remain consistent with a resilient US economy."

"Even so, the economy remains firm enough to reduce the risk of an overly dovish Fed, which should help contain USD downside."

"For now, we prefer to stay neutral on the dollar rather than chase the latest bout of weakness."

"The USD could find support if Warsh and other Fed officials push back against emerging debasement concerns and reinforce their commitment to returning inflation to the Fed's 2% target."

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