According to analysts at National Bank of Canada, the Federal Reserve’s dovish turn in June caused the trade-weighted U.S. dollar to register its first decline in five months.
Key Quotes
“It’s unclear, however, if rate cuts would hurt the U.S. dollar all that much. If the Fed opts for a cut of 50 basis points or lower this year, that could cause the greenback to appreciate rather than depreciate because such action would fall short of market expectations of a 75 bp decrease by the end of the year.”
“Even a 75 bp rate cut or more may not necessarily punish the USD if the stimulus is coming in the context of heightened concerns about the global economic outlook which may instead boost the greenback via safe haven flows.”
“For now, our base-case scenario is one where the U.S. and China agree to at least a truce in their ongoing trade war, something that’s likely to brighten global economic prospects somewhat. The resulting riskon sentiment may somewhat weigh on the greenback, which explains our call for USD softness to persist over the near term.”
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