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Dollar stays soft as investors weigh US fiscal credibility and BoJ outlook

MUFG’s Derek Halpenny says the dollar’s downside is capped near term, even as Japanese CPI data supports expectations of a 25 basis point BoJ hike in September.

Reported · Written up by our desk · Major Pairs

The US dollar weakened as investors shifted attention to potential US Treasury measures aimed at slowing the decline in Treasury yields, a view highlighted by MUFG’s Derek Halpenny, according to FXStreet.

Halpenny also linked the dollar’s limited near term upside to skepticism over whether the US will deliver credible fiscal consolidation, arguing that an unconvincing fiscal initiative would not support US Treasuries or the dollar.

The note pointed to Japan’s inflation backdrop, saying nationwide July CPI showed a rebound toward the 2.0% area and that core-core CPI rose to 1.9%, reinforcing expectations for a 25 basis point rate hike by the Bank of Japan in September.

FXStreet added that while the appetite to sell the dollar appears contained by Middle East risks, investors continued to watch for upcoming US PMI data, which could shape further currency moves.

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