The US dollar has ceded some of its recent gains against most G10 currencies as equities rebound and broader risk sentiment improves. Reports that the US and Iran will begin a new round of negotiations after weekend skirmishes have added to the risk tone, although oil-linked currencies such as the Australian dollar, Canadian dollar and Norwegian krone have lagged, alongside the yen.<\/p>\n
Attention turns to US releases, with consumer confidence expected at 97.5 versus 94.5, supporting the view of resilient spending. In contrast, JOLTS job openings are forecast to ease to 7.25m against a 7.3m consensus, a mix that still points to a healthy labour market. Overall, the data are seen as neutral to mildly supportive for the dollar, but bullish USD momentum is fading ahead of Kevin Warsh\u2019s Sintra speech tomorrow and Thursday\u2019s jobs figures.<\/p>\n
We see that the dollar’s bullish momentum has clearly faded as risk sentiment improves. The S&P 500 has gained nearly 2% in the past week, pulling capital away from the safe-haven dollar. Last week’s Non-Farm Payrolls report, which came in slightly below consensus at 195,000, further supports the idea that the dollar’s recent strength is exhausted.<\/p>\n
This improved risk appetite is partly fueled by the ongoing US-Iran negotiations, which are keeping a lid on oil prices. WTI crude has been holding steady near $78 a barrel, limiting the upside for oil-linked currencies. Consequently, we are seeing the Canadian dollar and Norwegian krone lag behind other G10 currencies.<\/p>\n
Given this stalled momentum, we believe it is prudent to consider derivative positions that would benefit from a weaker dollar in the coming weeks of July. This could involve looking at call options on pairs like EUR\/USD or GBP\/USD, which offer defined risk if the dollar rally unexpectedly resumes. These positions can serve as an effective hedge against the prevailing long-dollar trade becoming overcrowded.<\/p>\n
The market is now waiting for a new catalyst, which we expect from Fed Chair Warsh\u2019s upcoming speeches and the next round of inflation data. Historically, these pre-event lulls, much like the pauses we saw before the Jackson Hole symposiums in 2022 and 2023, often precede a spike in volatility. We should therefore consider strategies that can profit from a sharp price move in either direction, not just a continued slide.<\/p>\n
The key will be whether new data confirms a resilient US economy or points to a slowdown. With the latest Core PCE inflation reading holding at a stubborn 2.7%, any sign of economic weakness could quickly shift Fed expectations toward a more dovish stance. This makes watching the next round of retail sales and inflation figures absolutely critical for positioning in late July and August.<\/p>\n\n\n\n