The US dollar is on course for its best week in two years and looks to have found a near-term floor after its sharp fall in Q2. Today’s strong non-farm payrolls report (and robust ISM surveys earlier in the week), dovish signals from the ECB and the BoE, and another escalation in the Middle East combined to help the greenback rebound. Given the US economy continues to look in solid shape while Europe appears to be struggling again but the pace of rate cuts discounted in money markets is still roughly similar for the Fed and the ECB (and slightly slower for the BoE), relative interest rate expectations are not likely to shift against the dollar in the near term. And while the intensification of the conflict between Israel and Iran has so far made only limited impact on currency markets, the probability of a more substantial risk-off event generating safe haven demand for the dollar has plainly increased over recent days.
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