DXY to weaken alongside a more dovish Fed  - CIBC

A Federal Reserve looking to ease conditions as a result of trade tensions and global growth uncertainties, alongside waning domestic fundamentals, will see DXY weaken this year and into 2020 according to analysts at CIBC. 

Key Quotes: 

“Fed Chair Jerome Powell’s speech on July 10th clarified that an interest rate cut in the US is, in all likelihood, coming a bit sooner than we previously thought. The recent downward trend in hours worked and residential construction, which are often viewed as recession warning signals, has been enough reason to ease, given the lack of inflation pressures.”

“While the market has already priced in several rate cuts over the next year, we’re at the lower end of the spectrum, calling a 25 bps cut at the end of this month, with another 25 bps before year-end, and a pause through 2020. The household sector is in a position to support growth given a low debt-service burden, healthier after inflation wage gains, and a respectable savings rate.”

“While a shorter dose of rate cuts than markets now expect would typically be bullish for the US dollar, exchange rates are, of course, also dependant on the fundamentals behind the other countries’ currencies. On that score, we see reasons for the greenback to give back some ground against most other majors over the coming year.”

“If trade wars don’t escalate with Europe in 2020, and Trump pushes for at least a partial settlement with China ahead of the US election, that too could play against safe-haven positions in the greenback.”