The Global Manufacturing PMI Index increased for the second consecutive month in July. It is also showing modest signs of acceleration with the index now rallying above major moving averages.
In the coming months, the outlook for global growth is key for the greenback since it maintains a strong negative correlation with global growth indicators.
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This reflects the USD smile effect, where the greenback underperforms when growth in the rest of the world outpaces the US. For now, we think marginal upticks in global growth will remain bearish for the USD (as the reach for yield persists), but it will also challenge market pricing of the Fed.
We still believe that the USD could squeeze out another rally by year end but prefer to think of the USD as a trade rather than a trend.