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The US dollar has lost all its weekly gains as softer economic data and disappointing US earnings raise questions about the concept of US exceptionalism. The USD/JPY pair stands out as a notable performer, bolstered by recent hawkish inflation figures. However, further decline of the dollar may not be advisable.
In yesterday’s turbulent FX market, the dollar’s weekly gains were wiped out due to extensive position adjustments. Key factors contributing to this correction included comments from US President Trump regarding potential US-China trade negotiations, disappointing economic data, and lackluster performance in US equities following Walmart’s poor earnings, alongside Treasury Secretary Bessent’s remarks influencing a flattened yield curve.
Though optimism about easing trade tensions with China could be influential, we believe the dollar’s decline chiefly reflects deteriorating US domestic sentiment. Walmart’s results hinted at weaker consumer spending, and the US Leading Index pointed to a continued downward trend.
While the dollar may be adjusting to future outlooks, we see primarily upward risks for it as attention shifts back to tariff discussions, overshadowing any temporary optimism regarding economic growth or geopolitical peace deals.
