US Dollar: Lower short-term yields weigh on the Greenback – MUFG

MUFG’s Lee Hardman notes the US Dollar (USD) is trading on a softer footing as Fed rate hike expectations are scaled back following weaker labour data and a mixed United States (US) Producer Price Index (PPI) report. Short-term US yields are declining, yet the Dollar index still holds above its 200-day moving average. Strong US equities, especially AI-related tech stocks, and robust S&P 500 earnings are providing offsetting support.

Dollar soft as Fed repricing continues

"The US dollar has continued to trade on a softer footing this week encouraged by the scaling back of Fed rate hike expectations."

"The slowdown in private employment and wage growth in recent months alongside limited evidence of higher energy prices spilling over into core inflation since the US-Iran conflict started is providing more leeway for the Fed to leave rates on hold."

"As a result, the Fed is likely to place less weight on the upside inflation surprise in July."

"The ongoing decline in short-term US rates has been providing a headwind for the US dollar performance this month but has not yet been sufficient to trigger another leg lower after the sell-off at the end of last month."

"The dollar index continues to trade above support from the 200-day moving average at around 99.20."

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