Dollar rally takes a breather ahead of Fed and key US data

The US dollar seems set to remain within a tight range against most major currencies this week. At face value, the stronger-than-expected GDP data out of the US might point to a return to “higher for longer”, but the growing evidence of disinflationary pressures there appears to have kept the lid on Treasury yields and the greenback. Meanwhile, other central bankers – notably ECB President Christine Lagarde – have, like Fed officials last week, pushed back on investors’ expectations for rate cuts in the next couple of months. Against this backdrop, our view remains that there isn’t a lot of scope for a much stronger dollar over the coming quarters. That said, next week’s Fed policy announcement, Treasury quarterly refunding announcement (QRA), and key data releases – in particular, the employment cost index and non-farm payrolls – leave no shortage of short-term catalysts for the greenback.