The US Dollar appreciated further yesterday. Economists at Commerzbank discuss the conditions to see a shift in sentiment towards the greenback.

The foundation for a weaker Dollar in the medium term has already been laid

“How much longer USD strength at current levels remains justified will initially depend mainly on how much further the Fed will hike its key rate. The market is likely to hope for further information on how divided opinions amongst members are in tomorrow’s Fed meeting minutes. What matters mainly for the Dollar right now is that there are no fundamental doubts as to the fight against inflation being fought with maximum force.”

“Sentiment towards the Dollar is only likely to shift on a sustainable basis if we see clearer signs of a recession of the US economy. At that point, Fed rate cuts will be back on the agenda very quickly.” 

“If the Fed manages to control inflation, which the latest inflation data seems to suggest, there is more scope to cut rates if the US economy cools. Even at the risk of cutting rates again too soon thus keeping inflation higher for longer. The foundation for a weaker Dollar in the medium term has thus already been laid.”