Brown Brothers Harriman’s (BBH) Elias Haddad reports that global risk sentiment has improved, attributing this to ongoing US–Iran diplomacy which has maintained a ceasefire and led to a decline in Brent crude oil prices to just under $100 a barrel. This improvement in risk sentiment has resulted in the US Dollar (USD) softening against all major currencies, while stocks and bonds have risen [1].
BBH expects that the worst phase of the recent energy shock is likely over, suggesting that March 30 may have marked the bottom in risk sentiment. As a result, BBH anticipates the US Dollar Index (DXY) will continue to trade based on rate differentials, remaining within its established 96.00–100.00 range over the coming months. This range has held for nearly a year, and BBH does not foresee a breakout in the near term [1].
Structurally, BBH maintains a bearish outlook on the USD, citing three main factors: fading confidence in US trade and security policy, worsening US fiscal credibility, and the ongoing politicization of the Federal Reserve. These factors are expected to weigh on the USD’s performance going forward [1].
CONCLUSION
BBH sees the US Dollar remaining range-bound in the coming months, with a structurally bearish outlook due to persistent concerns over US policy and fiscal credibility. Improved global risk sentiment and easing energy prices are supporting a softer USD and stronger risk assets.