Analysts see limited upside for the dollar despite short-term relief, citing balanced labor data and steady wage growth.
The US dollar recovered some recent losses as concerns over the Federal Reserve’s credibility waned, though analysts expect the rebound to remain shallow. USD gains followed a retracement in 5y5y inflation swaps, which had spiked after Fed rhetoric failed to align with policy action.
Balanced US labor market conditions, wage growth consistent with the Fed’s 2% inflation target, and strong productivity growth support the disinflation outlook. Upcoming Q2 non-farm productivity data may further shape near-term rate expectations, but interest rate differentials suggest limited scope for a hawkish repricing.
Brent crude held just below $80 per barrel after a provisional Iran-Oman agreement raised prospects for increased energy flows through the Strait of Hormuz. The Swedish krona diverged from the broader USD trend as mixed July CPI data kept a Riksbank hike in play by year-end.