USD consolidates as geo-political risks recede - Scotiabank

The US Dollar (USD) is a little firmer overall on the day so far but its broader performance only reflects a consolidation in this week's sharp losses. Amid a calmer geopolitical backdrop, the major currencies are trading mixed against the big dollar; the AUD and NZD are relative outperformers while the JPY is a notable underachiever, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD steady to firmer versus majors

"Global stocks are mixed (firmer in Asia, weaker in Europe and flat to slightly lower in US equity future terms). Crude is somewhat firmer. News that the US bombing run may only have set back Iran's nuclear plans 'a few months' and reports that Israel's military leadership stated that the campaign against Iran is not over may mean that regional tensions remain close to the surface for energy markets. Fed Chair Powell played it pretty even handedly in yesterday's congressional testimony (expect more of the same in his Senate appearance today)."

"The chair stuck to the messaging evident at last week's post-FOMC press conference when he noted that tariff uncertainty precluded any adjustment in rates at the moment. He did concede, however, that Fed thinking is constantly adapting and that lower than expected inflation or a weaker labour market could see rate cuts sooner, and these comments weighed on USD sentiment to an extent. Soft US data, in the form of weaker than expected consumer confidence for June, also weighed on the USD mood yesterday."

"The US data run has disappointed market forecasts consistently in the past few weeks, suggesting that analysts' expectations are too high and/or the economy is weaker than expected. In contrast, Eurozone data surprises remain positive. The "spread" between the weakening US data trend and resilient Eurozone surprise index will help support EUR sentiment and add to broader pressure on the USD, likely capping nearterm DXY gains around 98.40/50. DXY losses will pick up below 98.00. As a proxy for global trade trends, weak Fedex results yesterday underscore the risk of a further retrenchment in global trade activity amid tariff uncertainty."