US Dollar Index: Strategy Views from Credit Agricole

Investors have been reassessing their excessive dovish Fed outlook since the start of 2024. This, coupled with some positive US data surprises, has helped the USD recover more recently. As a result, the currency no longer looks that oversold and we have adopted a more neutral tactical outlook from here. We also think that the approaching start of the Fed easing cycle in mid-2024 could weigh on the currency vs higher-yielding, riskcorrelated and commodity currencies. That being said, in the case of EUR/USD, the risk that the ECB could ‘outdove’ the Fed could remain a drag. The second driver of the USD this year would be risk aversion on the back of US recession risks in Q424 as well as escalating tariff angst in the run up to the 2024 US presidential election in November. This could allow the USD to regain some ground.