The US Dollar (USD) has slipped back somewhat overall through the course of the European morning session, giving up early gains to trade a little softer overall against most of its major currency peers as the North American day gets underway, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD consolidates as markets await developments

"New catalysts are few and far between for currencies, however. While the DXY looks a little soft, it remains well within recent ranges and sentiment—reflected in short-term risk reversal pricing for the Bloomberg dollar index—has slipped into neutral. We continue to think that the longer run outlook for the USD remains negative (weak fiscal policy, narrower growth and yield advantages, concerns over institutional resilience) but markets need new impetus to drive the dollar out of its current ranges."

"So far today, high beta/developing market FX is (mostly) outperforming (KRW, ZAR, SEK, AUD) as equity markets steady while gold is trading at a new cycle high. Seasonally, it’s all downhill from here for risk assets, at least as far as September is concerned, however. The CAD and JPY are marginal underperformer on the session. Yesterday’s US ISM Manufacturing data looked soft overall. Along with tariffs, the slump in the US housing market is starting to have a bigger impact on business sentiment, it would seem. Yesterday, Treasury Sec. Bessent said President Trump could declare are national housing market emergency to combat higher construction costs."

"But the key issue for the housing market appears to be excess supply and high mortgage rates discouraging homebuyers from moving. US JOLTS and Factory Orders data are released at 10ET. The Beige Book is out at 14ET. St Louis Fed President Musalem (voter) speaks at 9ET. The Trump administration will seek a quick ruling on the legality of reciprocal tariffs from the Supreme Court today. DXY resistance is stiffening in the upper 98 region. Support is 98.05/15 intraday."