Investing.com – The US dollar is on track for a big weekly decline amid renewed dovish hopes for the Federal Reserve, but this sell-off “appears overdone,” according to HSBC.
At 05:25 EDT (09:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading at 104.640, on track for a weekly loss of about 0.5%, on top of a monthly decline of 0.5%. . 1.3%.
The US dollar has suffered a “double whammy” recently, according to analysts at HSBC, in a note dated May 16.
Weaker-than-expected US activity data and the lack of further upside surprises in April inflation data renewed dovish hopes for the Fed – hitting the US dollar through the interest rate channel – and helped stimulate risk appetite – hurting the US dollar from… During the risk appetite channel that has shown recent signs of gaining momentum.
However, the bank added that this two-pronged blow to the US dollar could also play out in the opposite direction.
After three months of upward surprises, the Fed may need more than one month of inflation data to be confident that inflation is moving to target.
The Fed's rhetoric calling for patience could also destabilize the market ahead of the FOMC meeting in June where new “points” are awaited.
The UK-based bank said: “We look for a pause in the US dollar’s selling over the past month in the coming weeks, with the potential for a bounce against those currencies that could deliver a cautious surprise, or that are vulnerable to risk aversion.”
HSBC chose to express this expected shift in the tone of the dollar against the euro, opening a sell trade idea at $1.0880, targeting $1.0550, with a stop at $1.1050.
Remove ads
.
At 05:25 ET, EUR/USD was trading at $1.0841, on track for a 0.7% weekly gain and a 1.9% monthly increase.
“Although the ECB’s letter suggests a rate cut in June looks certain, we believe the market may be underestimating the risks of leaving the door open to a subsequent cut in July,” the bank said.
