USD: Tactical haven support but structural headwinds – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes the Dollar is tactically supported by haven demand linked to shipping risks in the Strait of Hormuz, even as the bank stays cyclically neutral on USD. Haddad expects DXY to trade back into a 96.00–100.00 range and maintain a structurally bearish Dollar view due to US policy credibility.

Haven bid contrasts with structural bearishness

"Financial markets remained driven last week by war-related headlines, with the safety of shipping through the crucial Strait of Hormuz the primary barometer for risk sentiment. Brent crude oil prices rallied back above $100 a barrel while the dollar powered forward against all major currencies, pushing the DXY to its highest level in nearly ten months."

"Tactically, USD can continue to benefit from haven bid driven by dollar funding needs until we reach peak fear regarding shipping through the Strait of Hormuz. Demand for short-term USD funding tends to spike during periods of stress due to the dollar’s dominant role in the global financial system (trade invoicing, cross border lending, global bond issuance, FX reserves)."

"Cyclically, we remain neutral USD and expect DXY to resume trading within a 96.00-100.00 range. DXY has overshot the level implied by rate differentials between the US and other major economies."

"Structurally, we maintain our long-held bearish USD view because of fading confidence in US trade and security policy, worsening US fiscal credibility, and the ongoing politicization of the Fed."

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