Dollar index

The US dollar forecast remains modestly bearish following last week’s big drop, driven largely by the rallying EUR/USD pair on the back of the Germany’s big spending plans.

The combination of uncertain growth prospects in the US and the possibility of large fiscal stimulus in Europe has had a predictably bearish impact on the US Dollar Index (DXY).

Friday's data showing strong wages growth and hot inflation expectations, and ongoing expectations of inflationary policies under Donald Trump, means the Fed is likely to remain on pause for a long time. Against this backdrop, the US dollar forecast remains bullish.

FX investors are looking forward to the release of US nonfarm payrolls report, due tomorrow, which should impact the near-term dollar forecast.

NFP leading indicators point to a potentially above-expectation reading in Friday's jobs report - see what it might mean for the US Dollar!

The US dollar forecast remains modestly bullish in our view, because of Trump’s inflationary policies. The fact that it has weakened a little in recent days is more of a reflection of the relief rally that some currencies like the euro have enjoyed.

While one can argue the greenback has made a short-term peak, the overall dollar forecast remains positive, especially against currencies subject to increased tariff risks from Trump’s administration.

Traders are pricing in roughly a 1-in-10 chance that the Fed leaves interest rates unchanged at its November, but it may take 4 more better-than-expected US economic reports in a row.

Meanwhile, most major foreign currencies remain week, further alleviating pressure on the US dollar. The sharp decline in Chinese markets over the last couple of sessions has put some pressure on commodity currencies. Additionally, the RBNZ cut rates by 50 basis points, sending the kiwi lower.

The leading indicators point to a potentially better-than-expected reading in this month’s NFP report, with headline job growth potentially coming in somewhere in the 130K-200K range

The greenback is likely to remain on the front-foot while geopolitical risks remain elevated and ahead of the US jobs report on Friday. The latter could then determine which direction the greenback will want to take in the near-term, before the focus turns to US presidential election.