Will the dollar fall further? Wall Street analysts weigh in

The dollar (DXY) index, which tracks the greenback against six major currencies, is down 1.1% year-to-date. Compared to the September 2022 peak, the dollar index trades nearly 11% lower at the moment.

In mid-July, the DXY hit a 15-month low in the wake of muted June U.S. inflation data. Still, the index managed to stage a bounce and is now testing an important short-term resistance, which consists of the 100- and 200-DMAs. The break of this resistance, which is located in the 102-102.5 zone, would pave the way for a test of the 103.7 level.

On the downside, support is located at 100.80.

So, where to go from here? UBS strategist Christopher Swann believes it is only a question of ‘when’ and not ‘if’ the dollar will continue to decline.

“We expect rate differentials between the US dollar and other currencies to narrow and see the dollar’s decline continuing in the months ahead,” Swann said in a client note.

UBS economists believe the ECB will hike again in September, while BoJ is backing away from its ultra-easy monetary policy. As a result, UBS is telling clients “to continue to position for a weaker US dollar.”

“We have a least preferred view on the US dollar, and a most preferred view on the euro and the Japanese yen. We also advise investors with the British pound and Swiss franc as their home currency to strengthen their home bias,” the strategist added.

On the other hand, Barclays strategist Venu Krishna argues that the USD “looks oversold in the near term.”

“Together with signs of a potential bottoming out in USD speculative futures, the trade-down in the dollar looks technically stretched. We don’t see the dollar weakening further until we get clear signs of improvement in the global growth outlook, with the greenback more prone to a short-term rebound in our view,” Krishna wrote in a client note.

By Senad Karaahmetovic

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