- The US dollar is taking it on the chin this week amid renewed strength in both advanced and emerging market currencies. The US Dollar Index (DXY) is trading at its lowest level since March 9th and is more than 7% off its late March high.
- Recent dollar weakness has the DXY testing key short and long-term support levels, both of which coalesce around ~95 for the dollar spot index.
- The short-term direction of the US dollar largely depends on the trajectory of the economic recovery in the US versus the rest of the world, cross-region real yield differentials, net speculative positioning, and whether another global risk-off environment returns.
The US dollar is taking it on the chin this week amid an influx of policy announcements and renewed strength in advanced and emerging market peers. The US Dollar Index (DXY) is trading at its lowest level since March 9th and now sits 7.5% off its late March high, causing many to speculate on its ultimate demise.
We’ve discussed at length just how important the US dollar is to the global financial system and the direction of various asset prices. Admittedly, our base case in the short run has been calling for further dollar strength in the aftermath of today’s historic crisis; global policymakers are trying to run the same playbook as the Fed but without the demand backing a global reserve currency. Over the long run though, we foresee significan