Further choppy conditions in the USD’s outlook – Rabobank

On a one-month view, the USD is the weakest performing G10 currency.  But in the view of economists at Rabobank, there are plenty of potential pitfalls in the months ahead for risk appetite which could be USD supportive.

Scope for pullbacks in the greenback

“While expectations of less Fed easing are conducive with a softer USD, this assumption is built around the view that credit conditions have tightened. Even if tighter credit conditions do not trigger another mini crisis, they do raise recession risks for the US.”

“A recession in the world's largest economy would not provide a backdrop in which investors are rushing into risky assets en-masse. The USD tends only to weaken significantly in periods when risk appetite is elevated, and EM assets are performing well.” 

“Given the risks around the US economic outlook in H2, we do not envisage a significantly weaker profile for the USD in the months ahead and see scope for pullbacks in the greenback reflecting the likelihood that risk appetite will remain twitchy.”