**US Dollar Outlook: Risk Appetite Lifts Major Currencies as Greenback Softens**
**Original Author**: Haresh Menghani, FXStreet
**Additional Insights Included from Investing.com and Reuters**
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### Executive Summary
This past week, heightened risk appetite in global financial markets led to a softer US dollar (USD), with major currencies registering gains. Enthusiasm for riskier assets outweighed concerns around persistent inflation in the United States and lingering uncertainty about the Federal Reserve’s policy direction. Investors repositioned their portfolios, favoring equities and higher-yielding currencies over the safety of the dollar. This article reviews last week’s Forex market dynamics, assesses key drivers, and provides forecasts for the major currency pairs in the coming week.
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### Global Risk Appetite Returns
– **Stocks and Sentiment**:
US equities staged a solid rebound, especially in technology and growth stocks. The S&P 500, Dow Jones, and Nasdaq all posted week-over-week gains, drawing capital away from low-yielding assets like the US dollar.
– **Commodities**:
Rising oil prices and broad-based commodity strength contributed to support for commodity-linked currencies such as the Australian dollar (AUD) and Canadian dollar (CAD).
– **Volatility Index**:
The VIX, also known as Wall Street’s “fear gauge,” trended lower last week, signaling improved investor confidence and contributing to diminished demand for safe-haven assets.
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### US Dollar Weakness: Key Reasons
– **Monetary Policy Uncertainty**:
Despite sticky inflation, market participants grew skeptical about the Federal Reserve raising rates further. Expectations are now focused on when the first cut may occur, perhaps as soon as late summer or early fall.
– **Soft US Data**:
Recent US macroeconomic releases included a weaker-than-expected ISM Manufacturing Index and softer job openings, both of which reduced confidence in US economic outperformance.
– **Global Yield Play**:
With US yields moving sideways and yields rising elsewhere, particularly in Europe and Australia, the appeal of holding dollars diminished.
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### Major Events This Past Week
– **FOMC Meeting Minutes**:
The Federal Reserve’s minutes indicated data dependence and uncertainty. Policymakers acknowledged progress on inflation as “disappointingly slow,” but investors perceived dovish undertones given the lack of commitment to further hikes.
– **Nonfarm Payrolls (NFP) Preview**:
Market participants looked ahead to the next US jobs report, with consensus forecasts showing some moderation in job growth. The prior week’s indicators, such as ADP payrolls and weekly claims, were mixed, contributing to US dollar softness.
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### Major FX Pair Trends
#### EUR/USD
– **Movement**:
The euro advanced to a multi-week high against the dollar, supported by hawkish European Central Bank (ECB) rhetoric and broad dollar weakness.
– **ECB Stance**:
Read more on AUD/USD trading.