US DOLLAR[1] FUNDAMENTAL FORECAST: BULLISH
- US Dollar gains with Treasury bonds as financial markets turn defensive
- EP elections, OECD outlook update may recommit traders to risk-off bias
- Running official commentary on US-China trade war remains a wildcard
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The US Dollar accelerated higher last week. A five-day winning streak marked the longest run of consecutive gains in two months, bringing the currency’s value against an average of its major counterparts within a hair of the 2019 high.
The advance ran parallel to rising Treasury bonds while the priced-in 2019 Fed policy outlook moved to a more dovish setting, signaling the markets now see a higher probability of a cut (now pegged at 75 percent). That points to haven demand against the backdrop de-risking as the impetus for gains.
The escalation of the US-China trade war stands out as investors’ top immediate concern. It compounds existing geopolitical uncertainties linked to Brexit, the European Parliament (EP) elections and growing tensions between the US and Iran. It also amplifies an existing slowdown in global growth.
USD[3] MAY RISE AS FED TAKS DOWN RATE CUT PROSPECTS IN RISK-OFF TRADE
The week ahead will see these risks reiterated. Voting in the next crop of MEPs has been positioned as a referendum on the merits of the EU as a whole, with markets nervous as eurosceptics of every stripe angle for a greater mandate.
