US Dollar Index seen around 98.5 by the second half of the year - Westpac

Relative growth comparisons and broad market sentiment remained supportive of the US dollar this month, explained Westpac analysts. They expect this will be the case into year end, a view also supported by the near balanced risks to the US outlook which compare to the pronounced downside risks that dominate the outlook for Europe and the UK. 

Key Quotes: 

“Relative growth differentials and sentiment have dictated terms in global FX markets this month. Key events have included the FOMC’s March meeting and a myriad of Brexit votes. From 97 at the time of our March Market Outlook, the US dollar (DXY index) took a quick trip down to an end-of-day low of 95.8 after the FOMC’s March meeting, where the Committee’s dovish new-year turn was confirmed by downwardly revised forecasts for activity and interest rates and a benign view of inflation.”

“With the FOMC having walked away from further rate hikes (for the foreseeable future) and activity data beginning to pick up again, the US dollar has quickly found renewed support, lifting back to 97 currently. This is despite the market fully pricing a cut by April 2020, up from only around a 50/50 chance priced-in at the time of the last Market Outlook.”

“US growth outperformance, both with respect to potential and against key trading partners such as Europe, is central to this US dollar rally and the further increase we see to around 98.5 in the second half of 2019.”