USD gains modestly on position adjustment - Scotiabank

The US Dollar (USD) eased yesterday, leaving the Dollar Index (DXY) at a new cycle low briefly, while Canada was enjoying its national holiday. But the USD has squeezed a little higher so far today as markets prepare for tomorrow's US data deluge and square up positioning ahead of the long weekend in the US, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

USD consolidates ahead of US NFP and July 4th

"A significant recovery in the USD seems unlikely at this point. The USD's decline since 'Liberation Day' has been relentless but the USD's performance so for this year overall has been extremely poor and, with June now in the bag, it's official. With a loss of just under 11% in the DXY since January 1, this is the worst run lower in the USD in the first six months of the year in the modern market era. This is not just traders taking a dim view of the USD outlook from a short-term, macro point of view."

"This trend reflects investors reconsidering their USD-denominated portfolios and FX hedge ratios due to concerns about the direction of US trade and fiscal policy as well as potential constraints on Fed independence--a constellation of significant potential negatives for the USD that is not yet fully reflected in the price. The fact that this highly unusual slide in the USD has not prompted any protests from US officials suggests that the weakening trend in the USD is meeting tacit approval--hardly surprising, perhaps given that efforts to reshape global trade with tariffs is only seeing limited progress at this point."

"We continue to think the DXY will drop to the 90/95 range in the coming months. ADP jobs data today are expected to reflect moderate private sector hiring in June amounting to 95k jobs (versus May's weak 37k update). The NFP data are released tomorrow morning (ahead of Friday's US holiday) and are expected to reflected a 110k gain in jobs, just below the 135k three month average."