USD to soften as interest rate differentials are set to tighten – Credit Suisse

The recent rebound in the US Dollar is not expected to extend as Greenback will no longer benefit from interest rate differentials, economists at Credit Suisse report.

USD strength to reverse

We expect the disinflationary trend in the US to outpace other countries including the Eurozone and the UK, and we thus expect interest rate differentials, which are currently supporting the USD, to tighten.

Meanwhile, we neutralize our view on the JPY from most preferred as we see limited near-term catalysts that could outweigh the substantial negative interest rate differential. Nonetheless, our models suggest that the JPY is meaningfully undervalued.