Growing fiscal risks, softer economic data and uncertainty over Federal Reserve policy could intensify pressure on the U.S. dollar, according to currency strategists. Higher U.S. bond yields have supported the dollar by attracting capital inflows, but this traditional relationship could break if investors believe the increase reflects fiscal risk rather than solid economic growth. The U.S. Dollar Index, which tracks the greenback against six major global currencies, is up 1.15% year-to-date, reaching a 52-week high of 101.80 in June. Softer U.S. data on consumption, inflation and employment have led investors to reduce bullish dollar positions, with Societe Generale anticipating the index could decline to an uninspiring 95-100 range for the rest of the year. Uncertainty over the Fed’s inflation reaction function adds further downward pressure on the dollar, according to Deutsche Bank.
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