Dollar Momentum Fades Amid High Fiscal Deficits
The US Dollar has lost momentum and extended its recent soft patch despite resilient economic data. According to MUFG's Lloyd Chan, elevated fiscal deficits and long-end Treasury yields are weighing on sentiment.
The dollar has struggled to benefit from upgraded US Q3 GDP growth forecasts, which have been increased to 2.5% annualized from 2.0%. This resilience is not translating into a stronger dollar as markets focus on the policy implications of high fiscal deficits and long-end Treasury yields.
Elevated fiscal deficits and long-end Treasury yields are weighing heavily on the dollar, which has brought it near key support levels. Speculative positioning data still show a modest net long USD bias, but price action suggests fading dollar upside momentum.