Fundamental Forecast for the US Dollar: Neutral
- But for the Russia-Ukraine conflict, the US Dollar[1]'s fundamental moorings appear to be less supportive.
- The 2s5s10s butterfly has receded to its narrowest spread since October 2021, a sign that the US Treasury yield curve has become less supportive of the US Dollar.
- According to the IG Client Sentiment Index[2], the US Dollar has a mixed bias heading into the last week of February.
US Dollar Week in Review
The US Dollar had a mixed week, with the DXY Index rising by +0.07%. But several USD[3]-pairs proved more volatile than the net-change of the DXY Index, as Russia-Ukraine headlines provoked meaningful swings. EUR/USD[4] rates settled down -0.23%, GBP/USD[5] rates added +0.24%, and USD/JPY[6] rates fell by -0.37%.
As US Treasury yields pullback and evolve in a manner that is less supportive of the US Dollar, the Russia-Ukraine crisis appears poised to remain the primary driver. Escalating headlines could weigh significantly on the Euro[7], which is the largest component of the DXY Index at 57.6%. Put simply, negative developments in Eastern Europe are good for the US Dollar right now, particularly as rates turn in a manner that have made the US Dollar less appealing.
US Economic Calendar in Focus
The last full week of February presents a thinner economic calendar than what has been experienced over the course of the month. While there are a handful of speeches from Federal Reserve policymakers and ‘high’ rated data releases, it seems highly likely that news flow around the Russia-Ukraine conflict will be the primary driver.
- On Monday, February 21, Fed Governor Michelle Bowman will give a speech at the American Bankers Association Conference
