Risk eases, USD poised for further weakness – Danske Bank

Senior Analyst at Danske Bank Mikael Milhoj believes the greenback should stay on the defensive for the time being.

Key Quotes

“As risk markets saw tentative signs of stabilising yesterday following the latest ‘reflation scare’, so did FX markets; EUR/USD, EUR/JPY and EUR/Scandies recovered partially after the latest sell-off”.

“While FX markets remain tense insofar as the relative pace of policy ‘normalisation’ is concerned, as long as the global growth outlook remains upbeat and central banks stick to very gradual exits (which remain our base case), any upside surprises to inflation should ultimately be welcomed by risk assets in serving as a lubricant for the global economy – even if it generates some volatility on the long and winding road back to ‘normal’.

“As such, we still deem that USD weakness is set to stick around. But it requires that Powell’s Fed moves at a measured pace”.