US Dollar: Modest grind higher with CPI in focus – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong expect the US Dollar (USD) to appreciate by around 2–3% by end-2026, supported versus low-yielding currencies such as the Euro (EUR) and Swiss Franc (CHF). The bank notes that a stronger USD move above 5% is a tail risk tied to Oil above USD100/bbl. Upcoming United States (US) Consumer Price Index (CPI) and Federal Reserve (Fed) Chair Warsh’s testimony are seen as potential catalysts for the USD’s gradual uptrend.

Gradual appreciation and key US data

"It remains finely balanced whether the inflation print, together with Fed Chair Warsh's semiannual monetary policy testimony, will provide the catalyst for the USD to resume its gradual uptrend after momentum stalled following the softer-than-expected June payrolls report."

"We expect the USD to grind modestly higher over the coming months, appreciating around 2% to 3% by end-2026. The USD should remain supported against low-yielding currencies such as the EUR and CHF."

"The JPY, however, could see near-term support from policy efforts to encourage greater domestic investment by Japanese pension funds. A more significant USD move of more than 5% remains a tail risk and would likely require oil prices to rise above USD100/bbl."

"With Fed officials continuing to emphasise inflation risks, attention now turns to Tuesday's June US CPI report."