The USD index (DXY) is set for its biggest weekly drop since February, even though rebounding some yesterday. The index, which is a nominal trade-weighted measure of the dollar comprised by a basket of six currencies, and which inversely correlates with EUR-USD direction, is presently at 95.52, down by over 1.5% from the 14-month high that was logged on August 15 at 96.98. The dollar was supressed in the early part of the week by President Trump's verbal interjection for more accommodative Fed policy, and then again as markets demanded a discount as Trump's political and legal jeopardy reared up following the criminal convictions of two of the president's former advisors, with one of which implicated Trump in charges of campaign finance violations. We don't think this week will mark an inflection point for the currency, however, as the U.S. economy is likely to continue to motor on and the Fed is likely, regardless of Trump's displeasure, to continue to tighten. We would also expect the dollar to appreciate in the scenario of fresh bouts of risk aversion in global markets in the event that the trade war continues to escalate, as it looks likely to do, with the mid-level talks in Washington this week between the U.S. and China amounting to nothing of substance, and with Beijing vowing today to keep retaliating to "unreasonable" U.S. trade measures.
