United States Dollar: Fed stance and data keep support – Nordea

Nordea analysts expect the Dollar to stay supported in coming months as the Federal Reserve maintains a relatively hawkish stance and US data remain firm. They argue that US growth and inflation dynamics justify higher yields versus peers, limiting Dollar downside. However, they still see a gradual Dollar depreciation over the medium term as global growth broadens and other central banks catch up.

Fed policy and data back Dollar strength

"In FX, we see the USD supported in the near term by relatively strong US data and a hawkish Fed, but we still expect a gradual depreciation over the medium term as growth outside the US improves and other central banks continue their hiking cycles."

"We expect the Fed to keep rates higher for longer than markets currently price, which should keep US yields elevated and support the dollar against most major currencies in the coming quarters."

"Risks to our USD view are two-sided, as a sharper-than-expected slowdown in US activity could trigger earlier Fed cuts and weigh on the dollar, while a renewed inflation surge or further upside surprises in US data could extend the period of dollar strength."