High rates and high energy costs continued to weigh on the dollar in May. The dismal prospect of higher inflation and slower growth did little to attract capital to the greenback and as a result all of the majors continued their rally first started in April. Going forward, only the possibility of lower oil prices appears likely to resuscitate US consumer demand as increasing mortgage costs continue to exert a very negative impact on disposable income. Additionally, reserve diversification from oil producers in the Gulf and Russia could also pressure the unit. With so few positive factors in the cards for the greenback, its most potent weapon may be pure sentiment. With so many euro longs assembled on one side of the market, further upside potential could be limited.
Boris Schlossberg
Senior Currency Strategist
bschlossberg@fxcm.com
