July 18, 2022

DoubleLine Views on the U.S. Dollar

in the near-term due to the following factors: tightening Federal Reserve policy, high U.S. inflation levels, and the dollar’s safehaven status amid low investor confidence and consumer sentiment. The Fed is likely to hike interest rates another 75 basis points (bps) on July 27 while the European Central Bank (ECB) is likely to hike only 25 bps on July 21, which would be dollar supportive. That disparity is likely being priced in already. As of now, expectations are for the ECB to play a bit of catch-up with 50-bp hikes thereafter, dependent on economic conditions. Potential mitigating factors to dollar strength in the near-term include the ECB, Bank of England and Bank of Japan potentially closing the gap with the Fed in terms of hawkish behavior to combat inflation, on which DoubleLine believes they are currently behind the curve.