Scotiabank’s Shaun Osborne and Eric Theoret note the US Dollar (USD) is broadly firmer as risk aversion dominates, with equities weaker and Oil higher. The US Dollar Index' (DXY) broader drift from late June highs has stalled around 100.5 support, but late-week price action still threatens a bearish weekly close. They argue OIS pricing for a year-end Fed hike remains too rich, implying USD downside as swaps reprice.

Risk-off flows and Fed repricing

"Overall movement across asset classes this morning reflects a classic “risk off” swing in trading. The equity screens are a sea of red on renewed concerns about the tech/chip cycle and escalating US/Iran attacks. Bonds are mostly firmer across core markets, with Treasurys outperforming modestly."

"The broader drift in the DXY from the late June high has extended this week around the weak inflation data but DXY support around the 100.5 point has effectively held. Late-week trading has been a bit more positive for the USD, but the DXY still risks closing the week on a bearish technical note—which will point to more losses ahead—unless it can rally significantly over the balance of the session."

"Generally, we continue to think that OIS pricing for a Fed hike by year-end is too rich. The USD will ease as the swaps curve reprices."

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