TD Securities strategists expect the US Dollar to retain some residual strength in Q3 as positioning normalizes and traditional safe-haven demand returns. They expect June US CPI to show subdued underlying inflation, with Core CPI rising 0.20% month-on-month as goods prices remain soft and shelter continues to normalize despite firm airfares. Headline CPI is forecast at -0.22% month-on-month, driven by a sharp gasoline price drop.

Q3 view on Dollar resilience

"We expect residual USD strength in Q3 as positioning normalizes and the dollar reclaims some of its traditional safe-haven appeal. However, without a return to 2022-style Fed and US exceptionalism, USD gains are likely to be episodic rather than trend-like."

"With the USD smile increasingly looking like a smirk, a much larger US growth advantage is now required to sustain a durable dollar rally."

"Core CPI: +0.20% m/m; subdued goods inflation and further shelter normalization to offset still firm airfares. Core goods ex-autos likely firmed with vehicle prices declining again. Headline CPI: -0.22% m/m, led by a 10% drop in gasoline."

"Risks: More balanced vs the most recent CPI reports. Carry is expected to turn negative, while long-run inflation expectations remain contained."

"Chair Warsh is due to testify to Congress today and tomorrow, with both appearances starting at 10am ET. We believe he's unlikely to expand on the guidance given in the FOMC minutes or his press conference. He has routinely avoided providing forward guidance and will likely deflect any questions on policy. However, he may provide more information on his plans for the new task forces, with new heads recently announced."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)