DXY: Shipping risk, inflation path and Fed easing – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes that global markets are cautious ahead of US-Iran ceasefire talks, with Brent, equities and bonds reacting while the Dollar stabilizes. He argues that if shipping security fears have peaked, risk appetite can improve and US Dollar Index (DXY) should trade in a 96.00–100.00 range, while maintaining a structurally bearish US Dollar (USD) view tied to US policy, fiscal and Fed politicization concerns.

Risk, inflation and Fed easing outlook

"Markets are trading on a cautious tone ahead of the US-Iran ceasefire talks planned this weekend in Islamabad. Brent crude oil prices are up 8% from Wednesday’s low, US stocks are churning, European stocks are up, global bond yields ticked higher but remain below their end-March highs, and the dollar’s decline stabilized."

"For financial markets, the key issue is whether peak shipping security fear is now behind us. President Donald Trump’s openness to Iran’s 10-point proposal, including recognition of its sovereignty over the crucial Strait of Hormuz, as “a workable basis on which to negotiate” suggests the worst of the shipping risk panic may be in the rear-view mirror."

"If so, risk appetite can improve further and anchor the DXY (USD index) within a 96.00-100.00 range. 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."

"As long as US underlying inflation and inflation expectations remain contained, the Fed will have room to resume easing to support the labor market and near stagnant consumer spending activity. Real personal spending growth undershot consensus at 0.1% m/m in February (consensus: +0.2%) vs. 0.0% in January (revised down from +0.1%)."

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