Today’s sell-off in the US dollar has left it little changed against most major currencies since last Friday. The catalysts for today’s decline, from fresh multi-decades highs, seem to be the ongoing hawkishness of the ECB and the rebound in risk appetite. We suspect next week’s US CPI release will set the tone for the dollar leading up to the FOMC meeting later this month. If, as we expect, CPI continues to edge lower, it might reinforce expectations for a Fed “pivot” and push the greenback lower. But we think falling inflation in the US is consistent with our view that the backdrop remains favourable for the dollar, as it stands to benefit from higher real rates while the global economy slows.
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