ACTV - Week Ahead: U.S. Dollar To Extend Recovery While Stocks Correct Lower

2024-07-20 09:45:00 ET

Summary

• The consolidative phase for the dollar, after its recent drop, is evolving into a proper upside correction.
• Japan's economy appears to have recovered in Q2 from the contraction in Q1.
• The eurozone's June PMI fell for the first time since last October.
• The dollar fell by about 5.3% against the peso in the first half of July.

The consolidative phase for the dollar, we anticipated last week, after its recent drop, is evolving into a proper upside correction. We expect the dollar to trade broadly firmer over the next week or so. It is also part of a larger picture, where US interest rates also look to have put in a near-term bottom and are set to recover. Ideas that the next US administration may favor a weaker dollar has become a talking point. Yet, of all the forces that drive the $7.5 trillion a day foreign exchange market, official preferences are not among the most salient. Nor is it simply a question of asymmetry, where it is thought easier to "talk down" a currency than to talk it up. That was not the case in the run-up to the Plaza Agreement in 1985 or the period before the coordinated material intervention in 2000, marking the end of the Clinton-Rubin-Tech Bubble dollar bull market. That said, the end of the dollar's cyclical rally and the change in the US policy mix could push the dollar in the "desired" direction....

For further details see: