US Dollar: Further losses could follow equity weakness - TD Securities

With the US Dollar Index (DXY) retreating below 102.00, TD Securities strategists believe the Dollar’s recent advance has run its course, as stretched positioning and consolidating yields limit further gains. They expect weakness to develop gradually, with a relief selloff in the USD anticipated after the US midterm elections. The relative performance of US and global equities remains a key driver.

USD faces gradual consolidation after peaking

"After a month of relentless rally, the USD shows signs of topping."

"Despite upside US inflation data surprise, the USD rally over the past month has become exhausted and started to reverse course, with the market also pricing out odds of October Fed rate hike."

"While the USD has likely discovered a top, we do not see sufficient catalysts for an immediate selloff for the USD."

"A relief selloff after the US midterm election is more likely, in our view, coinciding with year-end bearish USD seasonality and the current 3m DXY risk reversals stance in the options market."

"A sustained USD selloff will likely require either the US equity market's relative underperformance vs RoW, or clarity around an end for the Fed rate hikes, in our view."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)