The dollar reversed a two-day slide on Thursday. Fed hawkishness, strong retail sales, and Middle East tensions support the greenback. USD/JPY heads to 170 by 2027, says Kshitij.
The dollar reversed a two-day slide on Thursday. Global risk appetite faded. Big Tech stocks sold off, and the Federal Reserve's hawkish posture gave the greenback a fresh bid. FOMC members have signaled they are ready to raise rates again if inflation does not continue moving toward the 2% target.
US retail sales rose for an eighth straight month in June, the eleventh gain in twelve. Wells Fargo said betting against the American consumer is a losing trade. The bank scores 61 on AlphaScala's proprietary model. The improvement was tied to falling gasoline prices. That support is unlikely to last. The resumption of conflict in the Middle East threatens to hit the retail sector, the bank added.
Other major economies are deteriorating faster. The eurozone, dependent on oil and gas imports, faces a particularly sharp slowdown. Traders may price in ECB tightening in 2026. A recession would undermine that plan. The interest rate differential with the Fed will remain wide. Goldman Sachs cut its EUR/USD forecast to 1.12 from 1.18 over six months, and to 1.12 from 1.20 over 12 months.
The dollar also drew support from a sell-off in technology stocks that pushed equity indices lower. Escalation of the Middle East conflict boosted demand for the greenback as a safe haven.
USD/JPY resumed its rally. Japan's Finance Minister Katsunobu Kato returned to verbal intervention, saying the government will take decisive action at any time if needed. The comments came ahead of the weekend in Japan, when thin liquidity could give authorities cover to intervene.
Kshitij Consultancy Services, which Bloomberg ranked as the most accurate yen forecaster in the second quarter, said currency interventions will not help. USD/JPY is set to rise to 170 by 2027, based on US and Japanese stock index performance, the Fed-BoJ rate differential, and the CNH/JPY exchange rate, the firm said.
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