USD strength could be set to peak – Danske Bank

Morten Helt, senior analyst at Danske Bank, points out that the FX markets were spurred at the end of last week by improved risk sentiment from the combination of a strong US jobs report and the Fed’s Powell indicating that he is listening to the markets (if not to the President).

Key Quotes

“While we remain reluctant to see the more flexible Fed as a trigger for sustained EUR/USD upside – for that we need a more confident ECB – the continued shift in a softer direction from FOMC members suggests that Fedinduced dollar strength more broadly is drawing to a close.”

“Near term, the still-fragile risk environment should keep JPY and CHF underpinned, but we still do not see a broad-based weakening of USD just yet – for that China simply looks too vulnerable for some time still. Indeed, USD carry remains attractive despite stretched positioning (note, however, that IMM data has not been released since mid-December due to the US government shutdown). However, if US real rates invoke on a further sustained decline, USD strength could be set to peak – not least if we are right in projecting a trade deal down the road.”