USD: Remains in a sweet spot – HSBC

We believe that the US Dollar (USD) will remain strong supported by the level of US yields and divergent monetary paths. The “safe haven” USD is also likely to benefit in uncertain times, FX strategist Jackit Wong notes.

USD is likely to remain strong over the coming months

“We are nearing the halfway point of the year and our broad FX views remain largely unchanged. Since early September last year, we have believed in the strong USD, and we see this continuing in the months ahead. The US Dollar Index (DXY) has strengthened since the start of the year and has been tracking changes in the Federal Reserve (Fed) rate cut expectations closely.”

“Widespread rate cuts (ECB, BoC, Riksbank), while Bank of England (BoE) and the Reserve Bank of Australia (RBA) remaining on hold in June, raised questions abound on the pace and depth of the respective cutting cycles. Divergent monetary paths and the level of US yields should support our strong USD view.”

“The USD is likely to remain strong over the coming months. While the GBP has been stronger than expected so far this year, supported by buoyant risk appetite and relatively high yields, it is likely to be on a path of gradual weakness over the coming months when the BoE starts cutting rates. We expect the EUR to weaken against the USD.”