Synopsis:

Danske Bank notes that while easing trade tensions may support the US dollar in the short run, structural capital outflows and weakening US fundamentals pose significant downside risks over the medium to long term.

Key Points:

• Short-term support: Recent tariff de-escalation offers a near-term tailwind for USD.

• Weak US data risk: Danske remains concerned that upcoming hard data could deteriorate, undermining sentiment.

• Structural shifts: A broader reallocation away from US assets continues, driven by diminished confidence in US policy and long-term fundamentals.

Conclusion:

Despite near-term stability, Danske views the USD as structurally vulnerable due to persistent investor hesitancy and the likelihood of portfolio rotation out of US markets.