Brown Brothers Harriman’s (BBH) Elias Haddad notes that the US Dollar Index (DXY) is likely to overshoot the upper end of its 96.00–100.00 range as resilient United States (US) economic activity and a positive net energy balance support a more restrictive Federal Reserve (Fed). Strong foreign demand for US securities underpins the Dollar, although shrinking trade deficits may structurally weigh on USD over time.

DXY seen overshooting established range

"In our view, the dollar index (DXY) looks likely to overshoot the upper end of its nearly one year 96.00-100.00 range. The US has a positive net energy balance and resilient US economic activity backs a more restrictive Fed. Indeed, the Atlanta Fed GDPNow model estimates annualized real GDP growth of 4.0% in Q2 vs. 2.0% in Q1."

"Moreover, underlying demand for USD remains strong. The US Treasury International Capital (TIC) data showed that in the twelve months to March, foreign investors accumulated $1553bn of long-term US securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds). While down from the record high of $1680bn in January and the lowest since October 2025, the amount still dwarfs the -$700bn accumulated US trade deficit over the same period. "

"Nevertheless, we expect foreign appetite for US long-term securities to dwindle over time. The Trump administration’s effort to narrow the US trade deficit means fewer dollars will flow overseas, reducing the need for those funds to be recycled back into US securities. That’s pure balance of payments mechanics and is a structural drag on USD."

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