📖 Your Q2 Earnings Guide: Discover the Stocks ProPicks AI Highlights to Jump Post-EarningsRead more

Dollar selling "looks exaggerated" - HSBC

Published 05/17/2024, 05:23 AM
Updated 05/17/2024, 05:26 AM
© Reuters.
EUR/USD
-

Investing.com - The U.S. dollar is on track for a hefty weekly fall on renewed dovish hopes for the Federal Reserve, but this selling “looks exaggerated”, according to HSBC.

At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded at 104.640, on course for a weekly loss of around 0.5%, as well as a monthly drop of 1.3%. 

The USD has suffered from a “double whammy” lately, according to analysts at HSBC, in a note dated May 16. 

Softer-than-expected U.S. activity data and the lack of further upside surprises in April inflation data have rejuvenated dovish hopes for the Fed–hitting the USD through the rates channel–and helped spur risk appetite–hurting the USD through the risk appetite channel which has shown recent signs of gaining more traction. 

However, this two-pronged hit to the USD can also play in the opposite direction, the bank added.

After three months of upside surprises, the Fed may need more than one month’s in line inflation data to be confident about inflation moving to target. 

Also, Fed rhetoric arguing for patience might unsettle the market ahead of the June FOMC where new “dots” lie in wait. 

“We look for the USD selling of the last month to stop in the coming weeks, with a bounce possible against those currencies that could deliver a dovish surprise, or which are vulnerable to risk aversion,” the U.K.-based bank said.

HSBC has chosen to express this expected shift in dollar tone against the euro - opening a trade idea to sell EUR/USD at $1.0880, targeting $1.0550, with a stop at $1.1050.

At 05:25 ET, EUR/USD traded at $1.0841, on course for a weekly gain of 0.7% and a monthly increase of 1.9%.

“While ECB rhetoric suggests a June rate cut seems all but certain, we believe the market may be under-pricing the risk that the door will be left open to a follow-up cut in July,” the bank said.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.