The Dollar index has pulled back from its year-to-date peak near 102.95, ending four straight weekly advances, and has slipped below its 200-week moving average at about 102.10. Major FX rates were steady overnight, while the Dollar traded modestly softer after last week’s decline. Stronger US inflation data did not translate into further Fed repricing, and positioning built up over the past month appeared to unwind. Market pricing for a back-to-back Fed rate hike later this month eased to around 3bps, and the Fed chair did not indicate a clear need for another increase so soon after last month’s initial hike.
Foreign Inflows and Shifts in Asset Sentiment
Attention has also turned to the role of foreign inflows into US risk assets, with USD942 billion of US equity purchases recorded in the 12 months to July, while demand for US corporate bonds rose to USD452 billion over the same period. The Dollar’s recent softness has coincided with a wobble in AI-related trades: after hitting a record earlier this month, Bloomberg’s AI equity index is down about 9%. Moves have been sharper in semiconductor and neocloud equity indices, raising the risk that a sentiment shift could feed back into the currency.
