USD slips on weak sentiment - Scotiabank

With the US long weekend looming and no major data releases to deal with today, it's likely to be a fairly quiet session, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD slips on weak sentiment, little other news

"Many of this week's US data reports (Fed surveys, PMIs, weekly claims) came in somewhat better than expected. Positive data surprises suggest the economy may have improved after a weaker April but prospects remain soft as tariff uncertainty persists and we may not see any meaningful tariff impact on prices and the broader economy until the June data. A period of relative economic stasis may develop as businesses await tariff developments but that may not be too helpful for the USD."

"Despite positive data surprises, higher US yields (and wide spreads) and some renewed volatility in the US stocks, the USD is heading for a 1.5% loss in DXY terms on the week--it's first weekly decline since late April. The USD is not responding to typically bullish cues. FX market drivers are shifting from macro/Fed policy to fiscal/bond yields. Longer-term USD bull phases have been driven by cyclical factors (stronger growth, higher yields--'US exceptionalism') historically."

"USD bear phases tend to reflect concerns about structural (deficits) challenges, perhaps such as the one facing the US now as the president's tax bill progresses through Congress. President Trump's policies have conveyed a high degree of uncertainty onto US economic prospects and the outlook for the USD which international investors are responding to, and more USD losses seem likely in the weeks and months ahead."