Credit Agricole sees limited further downside for the USD, as the recent sell-off has lost momentum. The bank highlights three key reasons why the USD is unlikely to weaken significantly in the near term: (1) the Trump trade unwinding is largely complete, (2) US recession fears are overdone, and (3) the market’s Fed rate cut expectations may be too aggressive—a stance that the March FOMC meeting could challenge.

Key Points:

1️⃣ The “Trump Trade” Has Been Unwound 🔄

• The USD has revisited pre-election lows, meaning FX markets have fully priced in political risks.
• The impact of Trump-related trade policies on the dollar is now largely neutralized.

2️⃣ US Recession Fears Overdone 📉

• Markets have moved too aggressively in pricing a US slowdown.
• Upcoming US data could ease worst-case growth concerns, stabilizing the USD.

3️⃣ Fed Rate Expectations Too Dovish 🏦

• US rates markets have overestimated the Fed’s willingness to cut.
• The March FOMC could push back against these expectations, supporting the USD.

Conclusion:

Credit Agricole sees limited room for further USD downside, as Trump-related FX moves have run their course, US growth fears may be overblown, and the Fed is unlikely to validate ultra-dovish market pricing. The March FOMC meeting could provide a catalyst for renewed USD strength.

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