The US dollar is mixed today. The buck is higher against currencies offering negative interest rates (euro, Japanese yen, Swiss franc) while selling off against other currencies (British pound, Australian dollar, Canadian dollar). Last week, the dollar strengthened alongside rising US Treasury yields. As inflation rises, expectations are increasing for the Federal Reserve to further hike rates this year.
Turning to recent news, political risks relating to North Korea and US-China trade tensions are easing. North Korea stated it would suspend missile and nuclear tests, and dismantle its nuclear site. While President Trump tweeted "we are a long way from conclusion on North Korea" in response, developments in the Korean Peninsula are heading in the right direction. Turning to trade, U.S. Treasury Secretary Steven Mnuchin said that he is considering traveling to China in order to discuss economic issues. Chinese officials have responded by welcoming US officials to the country. While the Trump administration threatened to escalate tariffs a few weeks ago, the latest developments suggest some hope for a positive outcome.
In general, the bearish trend in US dollar is coming to an end (despite significant speculator interest in the "short dollar" trade). While our outlook remains mildly bearish, we expect to upgrade our outlook on the dollar to bullish later this year. As global growth decelerates, the dollar is likely to re-establish its traditional relationship with interest rates. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.
USD/JPY is up today and currently trading above 107.80. EUR/USD is down slightly and trading above 1.2270. The pound is up slightly, and GBP/USD is currently above 1.4020.
Looking at economic data and events from the US this week, traders will be paying close attention to upcoming Q1 2018 GDP growth figures. Later today, we’ll see the Chicago Fed national activity index for March, existing home sales for March, as well as preliminary Markit composite PMIs for April. Tomorrow, we’ll see S&P/Case-Shiller home prices (February), as well as March new home sales. On Thursday, we’ll see weekly initial jobless claims figures as well as durable goods for March. On Friday, the most important day, we’ll see Q1 GDP growth and Q1 personal consumption expenditures. We’ll also see the Michigan consumer sentiment index for April. Last week, the Fed’s Beige Book suggested that growth continues to accelerate at a moderate pace.
As the dollar gains strength, we are upgrading the dollar to neutral in the short-term. Note that the currency is now trading within normal conditions in the short-term time frame. Our analysis is based on various technical indicators when looking at a daily chart of the US dollar index.
Thanks to recent dollar weakness, we are downgrading the US dollar to bearish. Note that the currency is trading within normal conditions. This is based on technical indicators when looking at a weekly chart.