We doubt near-term headwinds for the dollar will last

The US dollar seems set to end the week lower against most major currencies, a third successive weekly decline, and a drop of ~3% in the DXY index from its multi-year high earlier this month. In part, this week’s fall probably reflects the rebound in equity markets, and risk sentiment generally. In addition, government bond yields in the US have fallen, while those elsewhere have largely held flat, so yield differentials have moved against the dollar. This is consistent with an emerging narrative that US growth will slow and the Fed will not hike rates quite as aggressively as previously anticipated.