Synopsis:
Credit Agricole identifies three key pressures undermining the US dollar: dovish Fed rate expectations, renewed debate over the USD’s reserve status, and escalating trade tensions ahead of the July tariff deadline. While structural USD dominance remains intact, near-term sentiment is fragile.
Key Points:
1. Fed Rate Cut Expectations Rise:
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A second soft inflation print has led markets to fully price in two 25bp cuts by year-end.
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Credit Agricole’s economists caution that tariffs have yet to fully feed into CPI as firms deplete pre-Liberation Day inventories.
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The Fed is still expected to hold steady next week, favoring a wait-and-see stance.
2. EUR Reserve Currency Momentum – Still Premature:
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The ECB’s recent report acknowledged rising EUR internationalization.
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However, structural hurdles—lack of full banking, savings, and investment union—limit the euro’s near-term challenge to USD dominance.
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Credit Agricole sees no imminent threat to the USD’s reserve currency role.
3. Trade War Risks Resurface:
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President Trump has signaled he will issue letters on foreign tariff levels, reviving fears of renewed trade escalation.
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With the 9 July deadline for the reciprocal tariff pause approaching, market confidence that trade tensions have peaked is faltering.
Conclusion:
The USD faces near-term pressure from dovish rate expectations, fragile reserve currency sentiment, and resurgent trade risks. While Credit Agricole remains skeptical of structural de-dollarization, the current environment presents tactical headwinds for the greenback, particularly as the July tariff deadline looms.
