The US Dollar’s (USD) sharp, post-election advance has moderated a little today, reflecting some drift in US short rates and perhaps some consolidation in USD-bullish positioning, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

USD remains firm but consolidates

“The USD has come a long way in a short period of time following the US election and it was already looking very stretched in terms of gains against the majors before the vote. To a large extent, the dollar’s post-election rise appears to reflect the resulting shifts in interest rates and rate expectations—a resilient economy and assumptions of pro-growth strategies under president-elect Trump have curbed Fed rate cut bets while yields have retreated somewhat outside of the US.”

“The DXY is running a little ahead of estimated fair value based on weighted, short-term yield spreads but not by all that much. Perhaps most of the good (spread) news for the USD—for now—is priced in. The door remains open to further USD gains once the new administration lays out its policy priorities so scope for USD losses is likely to remain limited for now.”