MUFG 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 reduction in global trade tensions has delivered a second successive blow for the US dollar. It follows hot on the heels of the recent dovish shift in Fed communication. During this year when trade tensions have escalated between the US and a foreign nation, the dollar has tended to appreciate against the foreign currency. It reflects the perception in part that the US economy is less sensitive to downside risks from global trade while overseas economies have been slowing more notably this year.
"As a result, it should be no surprise that the US dollar strength is now reversing as global trade tensions ease in the near-term after it climbed on month-end rebalancing flows last week Friday. One caveat which could dampen potential US dollar downside is that the breakthrough in trade tensions if sustained could encourage the Fed to deliver more monetary tightening next year," MUFG adds.