Danske Research discusses the USD outlook in light of the latest global trade's development on the back of the temporary ceasefire between the US and China over the weekend.
"The US-China ceasefire on tariffs is a key signal to the USD: the burden of correcting the US current account deficit is now back on the currency which should, all else being equal, act as a drag on the dollar. The knee-jerk reaction last night was to send, e.g. EUR/USD slightly higher. However, the still bumpy road to an outright trade deal means that FX markets will still price in some non-negligible risk of the trade war blossoming up again down the road," Danske argues.
We maintain that current Fed pricing is too soft given the strength of the US economy and look for the dollar to fight back near term: Powell speaking on Wednesday and Friday’s job report key in this respect," Danske adds.