US Dollar rebounds to start the week as risk rally fades. Nonetheless, economists at Scotiabank note that USD risk reversals reflect a clear weakening in broader USD bull sentiment.

Further gains in US equity markets to weigh on the broader USD tone

“We note that USD risk reversals reflect a clear weakening in broader USD bull sentiment – a view we concur with, given the USD’s overextended gains.”

“The USD may find itself a bit more susceptible to soft economic data in the near-term at least and may struggle to improve materially, even if policymakers maintain a hawkish outlook for rates.”

“Further gains in US equity markets are liable to weigh on the broader USD tone.”