USD: patience required amid loss of rate support
Despite some USD resilience overnight, the dollar’s on-going slide reflects a combination of stretched long positioning and an adverse move in rate differentials. The local peak in rate spreads in the USD’s favour came on July 5, in the aftermath of the strong US June jobs report and the ECB and BOE meetings. Since then, though its yield advantage has slipped, we expect the USD to regain yield advantage vs. EUR and GBP as we move through Q3, but USD bulls may need to be patient pending a resumption of divergent central bank news and data flows. The data calendar in the US today is limited to new home sales and our economists expect the numbers to fall a bit short of consensus, doing little to offset the concerns raised by soft existing home sales and housing starts data released over the past week.
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BNP Paribas