An inverted US Treasury yield curve generally suggests a reasonably high chance of a US recession. Meanwhile, geopolitical uncertainty remains high and a key focus. All this should lend support to the counter-cycle nature of the US dollar, in the view of economists at HSBC.

USD tends to benefit when the global economy is cooling

“We believe it is too early to turn bearish on the USD. An inverted US yield curve is not the right condition for us to think differently.”

“If global economic activity is set to wilt in the face of monetary tightening, geopolitical risks, and squeezed real incomes, then the USD will not be among the more vulnerable.”

“Over the near-term, there is a lot in the price in terms of likely Fed tightening, and there are no more key US data releases for markets to become even more hawkish ahead of the Fed’s3-4 May meeting. As such, it could leave the USD on autopilot edging higher in the coming weeks, barring significant changes on the geopolitical front, but the pace may slow from that seen in early April.”