USD: Softer tone as conflict risks reassessed – MUFG

MUFG’s Senior Currency Analyst Lee Hardman notes the US Dollar has weakened as President Trump’s comments reduced fears of a prolonged Middle East conflict and Oil reversed sharply from recent highs. The bank highlights that a temporary energy price shock would be less disruptive for the global economy and could see the Dollar give back gains, especially as yield spreads have moved against the USD with more hawkish repricing in Europe and the UK.

Dollar pressured by Oil and yields

"The US dollar has continued to trade at weaker levels after President Trump dampened investor concerns over the risk of a more prolonged conflict in the Middle East."

"The timely comments from President Trump are perhaps an indication that the oil price spike was starting to become a bigger concern which could restraint the duration of the conflict."

"It is one of the reasons in our latest our FX forecasts that we had assumed that the conflict was more likely to last weeks rather than months."

"A temporary energy price shock would be less disruptive for the global economy, and could see the US dollar continuing to give back recent gains."

"Another factor which has been helping to dampen US dollar strength on the back of the energy price shock has been the recent move in yield spreads."

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