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UOB Group’s Strategists evaluate the prospects for the greenback in the next months.

Key Quotes

“The USD currently draws strength from the jump in US Treasuries yield over the past quarter. Our technical analysis also highlights the risk that a weekly close in the USD Index (DXY) above 93.40 would greatly increase the odds of further DXY strength to 94.30.”

“President Biden’s upcoming massive infrastructure stimulus plan may unleash potent fiscal forces that will add to USD uncertainty. Over the near term, the fiscal push is positive for the USD as it anchors US growth and intensifies inflation concerns. However, President Biden may choose to fund the massive stimulus plan with either much higher taxes or more elevated supply of US Treasuries. Both choices may have unpleasant implications for the USD over the longer term.”

“Overall, our FX view remains that the current USD strength since the start of this year may not extend into 2H21. The brighter global growth outlook means that cyclical and risk currencies within the Majors and Asian FX space would regain their footing and strengthen anew against the USD. Specifically, we maintain our view that the CNY, SGD and most Asian FX will exhibit renewed modest strength in the latter half of the year.”

“As for our rates view, we note that potential for front end money market rates to reprice higher remains constrained by dovish policy guidance. However, longer dated Treasuries yield will continue to push higher to test the policy makers’ tolerance of the upper bound. Specifically, we had in mid-March raised our year end forecast for 10 year US Treasuries yield to 2.0%.”