USD: Defensive trading persists – BBH

Brown Brothers Harriman's (BBH) report indicates that the USD continues to trade defensively, with expectations for the dollar index (DXY) to hold above its July and September 2025 lows. Structural drags on the USD, such as fading confidence in US trade policy and worsening fiscal credibility, could lead to a decline. The report also highlights potential risks from official intervention to weaken USD/JPY.

USD trading outlook remains cautious

"We expect the dollar index (DXY) to hold above its July and September 2025 lows. USD has undershot the level implied by rate differentials and resilient US economic activity suggests the Fed can afford to be patient before resuming easing."

"However, structural drags on USD - fading confidence in US trade and security policy, politicization of the Fed, and worsening US fiscal credibility - could outweigh the more neutral cyclical USD backdrop and pull USD lower, like in Q2 last year."

"Moreover, risk of additional official intervention to weaken USD/JPY can spill over into broader USD weakness against other major currencies."

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