The USD faces two conflicting forces: potential fiscal stimulus from a second Trump term, which could boost inflation, rates, and yields; and expectations of Fed rate cuts due to weak US economic data. The latter currently dominates, with the first rate cut expected soon.

Many Fed-related negatives are already priced into the USD, with an 80% chance of three rate cuts this year. Upcoming US economic data and Fed communications could shift this outlook.

In the FX market, reduced long positions indicate that only significant data deviations would impact the USD. The currency may be more resilient to negative data than expected.

In summary, the USD is at a crossroads, influenced by fiscal policies and Fed rate cuts. Much of the negative outlook is likely priced in, making upcoming economic data and Fed communications crucial.

This content is for informational purposes only and does not constitute financial or investment advice. ACY assumes no liability for third-party information accuracy.

The USD at a Crossroads

Jul 17 2024

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