TD Securities’ FX team, led by Jayati Bharadwaj and colleagues, keeps a neutral short-term stance on the US Dollar (USD) following the April United States (US) Consumer Price Index (CPI) release. They argue that reopening the Strait of Hormuz would weaken the USD, but strong US labor data and equity outperformance limit downside. They also see limited upside unless US inflation re-accelerates or global demand weakens.

Dollar seen capped in both directions

"We remain neutral on the USD short-term; while reopening the Strait of Hormuz will weaken the USD, recent resilient US labor market data and equity outperformance raises the threshold for a major selloff beyond that."

"On the other hand, significant USD gains remain unlikely unless US inflation spikes or rest of the world shows signs of demand destruction."

"Market reaction to CPI is relatively muted due to soft core goods inflation and limited tariff passthrough."

"Markets are focusing on central bank responses to inflation, not future growth impacts from the current conflict."

"If core inflation doesn't worsen going forward, the current global energy shock should prompt only moderate rate changes for some banks with negative real rates like the ECB."

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