Brown Brothers Harriman’s (BBH) Elias Haddad notes that global risk sentiment has improved as markets position for a potential conflict resolution involving Iran, with DXY consolidating below 100.00. However, he warns that Dollar funding needs in stress periods keep USD risks skewed higher near term, even as BBH remains cyclically neutral within a 96.00–100.00 DXY range and structurally bearish longer term.
USD skewed higher despite structural bearishness
“Global stocks and bonds are rallying, Brent crude oil prices are trading heavy near $100 a barrel, and DXY is consolidating below 100.00. Ultimately, Iran’s response to the US de-escalation pivot will decide whether peak fear is behind us or still ahead.”
“Until the fog of war clears, USD risks remain skewed to the upside driven by dollar funding needs in periods of financial market stress.”
“Cyclically, we are neutral USD and expect DXY to remain anchored within a 96.00-100.00 range, in line with rate differentials between the US and other major economies.”
“Structurally, we maintain a bearish USD view because of fading confidence in US trade and security policy, worsening US fiscal credibility, and the ongoing politicization of the Fed.”
