FXStreet reports that economists at Capital Economics believe the continued policy divergence is likely to support the US dollar.

“Although the US Treasury’s biannual report refrained from explicitly naming any country a ‘currency manipulator’, it highlighted the growing policy divergence between the US and other major economies. We think that this policy gap will continue to put upward pressure on the US dollar – despite its recent weakness, we think that it will end the year stronger against most other currencies.”

“We expect that US yields will eventually resume their rise, and again outpace those of most other major economies. That would put renewed upward pressure on the dollar.”

“In the longer term, the US’ enduring trade deficits (and the continual deterioration of its external balance sheet that results) point to a weaker dollar. But in the near term, the US’ forceful fiscal approach and resulting upward pressure on long-term US Treasury yields suggest, in our view, that the greenback will strengthen.”