Synopsis:

HSBC identifies two key reasons why they believe the USD sell-off may have run its course, highlighting excessive weakness and insufficient macroeconomic justification for further easing.

Key Points:

1. Excessive Weakness Relative to Dovish Expectations: Despite market expectations for a potential 100 basis points rate cut by the Fed before year-end, the USD appears overly weak in light of these dovish projections.
2. Insufficient Macro Justification for Aggressive Easing: HSBC argues that the US economic outlook does not support such a significant rate cut, given the absence of clear recession signals and the belief that a 50 basis point cut would be more appropriate for a ‘soft landing’ scenario.

Conclusion:

Given the current DXY levels near December 2023 lows and the perceived overreaction in USD weakness, HSBC finds grounds to be bullish on the USD, suggesting that the recent sell-off may be overextended.