Dollar's Short-Term Strength Masks Longer-Term Headwinds

Societe Generale's Kit Juckes argues that while the US dollar is facing longer-term headwinds, its short-term outlook remains constructive. The Dollar Index could push toward its 2026 highs and drive EUR/USD to fresh lows due to strong US data and higher inflation.

The midterm elections may make it difficult for President Trump to maintain accommodative fiscal policies that have supported both the economy and the dollar. The world's major savings economies are saving less than they once did, while the US is having to pay more to attract investment.

However, energy importers remain under pressure, with the yen yet to benefit from tighter monetary policy and the euro unable to gain support from upgrades to growth expectations. The US economy shows few signs of a meaningful slowdown, with data including JOLTS, ADP employment, personal income and spending, trade, ISM surveys, and labour market data.