Gains could extend a bit more towards 106 – Scotiabank

The US Dollar Index is trading close to 104. What are the chances of a broader turn lower in the USD from here? Shaun Osborne, Chief FX Strategist at Scotiabank, analyzes Greenback’s outlook.

Macro and policy factors have edged back in the USD’s favour

Macro and policy factors have edged back in the USD’s favour. But some (or a lot) of that is already priced in and longer-run price trends remain generally USD-bearish after the DXY peak and reversal in 2022. 

The bear trend has stalled but it has not yet shown clear signs of turning bullish. The US economic outlook is not totally without risk. 

DXY gains could perhaps extend a bit more towards 106 from current levels but the USD is already looking ‘rich’ against some currencies and gains would be a stretch in valuation terms without some significant changes in the underlying economic outlook.