Brown Brothers Harriman’s (BBH) Elias Haddad notes that global risk sentiment has improved as US–Iran diplomacy keeps a ceasefire in place, pushing Brent lower and the US Dollar (USD) softer. BBH expects the energy shock’s worst phase is likely over and sees US Dollar Index (DXY) trading off rate differentials, remaining in its 96.00–100.00 range over coming months, while maintaining a structurally bearish Dollar view.

DXY seen confined to established range

"Financial markets are back in risk-on mode as the US and Iran weigh further negotiations to extend a two-week ceasefire. Brent crude oil prices are down just under $100 a barrel, stocks and bonds are up, while USD is drifting lower against all major currencies."

"We are sticking to our view that while the energy shock may not be over, the worst is probably behind us. If so, March 30 likely marked the bottom in risk sentiment. That would leave DXY (USD index) trading off rate differentials once again, keeping the currency within its nearly one-year 96.00-100.00 range over the next few months."

"Structurally, we maintain our long-held bearish USD view because of: (i) fading confidence in US trade and security policy, (ii) worsening US fiscal credibility, and (iii) the ongoing politicization of the Fed."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)