Outlook
The US dollar remains in a tug-of-war between supportive headlines around Warsh’s Fed chair nomination and a possible near-term pull from broader de-dollarization trends. Markets view Kevin Warsh as credible and potentially less dovish, which could reinforce expectations of Fed independence and help the dollar in the near term if ISM manufacturing PMI data show strength. However, ongoing de-dollarization efforts, capital outflows from US assets, and geopolitical tensions—along with a Fed that has paused rate cuts—limit upside and keep the USD prone to range-bound moves early in the week.
Key drivers
- Warsh nomination: credibleFed chair candidate, seen as supportive of an independent Fed, which could underpin dollar firmness.
- ISM manufacturing PMI: potential for a positive surprise to extend any near-term USD recovery if US factory activity improves.
- Fed policy stance: pause on rate cuts at 3.5%–3.75% keeps a cautious stance, with unclear trajectory for future easing.
- Sell America trend: rising outflows from USD assets as investors reduce exposure to US equities, bonds, and dollars.
- Global de-dollarization: BRICS plans to lift local-currency settlement share from 35% to 50% signal less USD dependence in trade and reserves.
- Geopolitical tensions: tariff threats and related geopolitical risk add USD volatility and can weigh on USD under risk-off scenarios.
- Oil price moves: Oil at 67.36 USD, well above the three-month average, contributing to commodity-sensitive dynamics and broader market volatility that can influence USD/EUR and other pairs.
Range
USD to EUR is at 7-day highs near 0.8440, 1.5% below its 3-month average of 0.8562, having traded in a wide 0.8312 to 0.8711 range. USD to GBP at 0.7307 is 2.3% below its 3-month average of 0.7481, with a 0.7227 to 0.7681 range. USD to JPY at 155.0 is 0.6% below its 3-month average of 156, having traded in a 152.3 to 159.1 range. OIL to USD at 67.36 is 6.5% above its 3-month average of 63.24, within a 59.04 to 69.09 range.
What could change it
- A stronger-than-expected US data print (e.g., ISM PMI) or hawkish Fed commentary that shifts rate expectations.
- A shift in de-dollarization momentum, either from policy developments or broader risk appetite improvements.
- Unexpected geopolitical developments or changes in trade policy that alter USD safe-haven demand.
- Significant oil price moves that alter global risk sentiment and import/export dynamics for the USD.
