US Dollar: Could equity weakness deepen losses? - TD Securities

Further Dollar gains appear constrained by stretched positioning and consolidating yields, with the US Dollar Index (DXY) slipping below 102.00. TD Securities strategists believe the recent rally has peaked but expect weakness to develop only gradually. They anticipate a relief selloff in the USD after the US midterm elections, while the performance of US equities relative to global equities remains a key driver.

Has the USD peaked ahead of gradual consolidation?

"After a month of relentless rally, the USD shows signs of topping."

"Despite upside US inflation data surprise, the USD rally over the past month has become exhausted and started to reverse course, with the market also pricing out odds of October Fed rate hike."

"While the USD has likely discovered a top, we do not see sufficient catalysts for an immediate selloff for the USD."

"A relief selloff after the US midterm election is more likely, in our view, coinciding with year-end bearish USD seasonality and the current 3m DXY risk reversals stance in the options market."

"A sustained USD selloff will likely require either the US equity market's relative underperformance vs RoW, or clarity around an end for the Fed rate hikes, in our view."

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