It’s been a volatile week for the greenback, underscoring how fragile investor sentiment remains. Fitch Solutions’ research unit BMI is charting four scenarios for the USD as multiple forces shape its course over the coming months.

IN CONTEXT- A sharp slide last week has kept investors on edge even after the FederalReserve’s decision to hold interest rates steady, reviving concerns that the USD could be drifting toward a broader decline reminiscent of early 2025. A rebound followed on Friday on news that US President Donald Trump is nominating a new Fed governor, with the gains steadying through Monday.

The scenarios

#1- In a bearish “sell America” scenario, BMI says doubts over fiscal discipline, sticky inflation, and the perceived erosion of Fed independence could drive investors away from US assets, pushing the greenback index toward the mid‑to‑high 80s. This decline could become self‑reinforcing if investors grow more concerned and begin to hedge or cut exposure to US assets more aggressively, according to BMI.

#2- The opposite outcome remains possible: A resurgence of global risk aversion — triggered by geopolitical shocks or emerging‑market stress — could quickly restore the USD’s safe‑haven appeal, lifting the currency back toward the 100-105 range as capital flows into US Treasuries.

#3- A bring-on-the-risk scenario assumes a shift toward global risk appetite, where more global players are emboldened by the US’ economic growth and higher commodity prices boost capital inflows. In this environment, stronger global growth, coupled with more aggressive currency policies in China and Japan, could weaken the USD index by around 5% to the 90-95 range, even as US assets benefit from larger repatriated income.

#4- Index through the roof? Strong US growth, coupled with increased FDI inflows from trade agreements and narrowing trade deficits, could push the greenback index into the 100-110 range. This outcome would likely heighten volatility for emerging market currencies as capital is pulled back toward the US.

What’s next?

For now, investors are reassessing their next move. With the Fed signaling patience rather than urgency, attention is shifting from rate cuts to policy credibility and political pressure. Any renewed doubts over central bank independence could weigh further on the USD. An intervention by Japan in the currency market could also put downward pressure.

MARKETS THIS MORNING-

After a turbulent start to the week, markets are rebounding thanks to a jump in US factory activity and the initial shock after Trump unveiled his Fed chair nominee fading. Asia-Pacific markets are mostly in the green in early trading this morning, led by South Korea’s Kospi.

TASI

11,321

+1.4% (YTD: +7.9%)

MSCI Tadawul 30

1,524

+1.4% (YTD: +9.9%)

NomuC

24,013

+1.2% (YTD: +3.1%)

USD : SAR (SAMA)

USD 3.75 Sell

USD 3.75 Buy

Interest rates

4.25% repo

3.75% reverse repo

EGX30

47,606

-0.1% (YTD: +13.8%)

ADX

10,338

+0.6% (YTD: +3.5%)

DFM

6,573

+2.1% (YTD: +8.7%)

S&P 500

6,976

+0.5% (YTD: +1.9%)

FTSE 100

10,342

+1.2% (YTD: +4.1%)

Euro Stoxx 50

6,008

+1.0% (YTD: +3.7%)

Brent crude

USD 66.30

-4.3%

Natural gas (Nymex)

USD 3.23

-0.3%

Gold

USD 4,774

+2.6%

BTC

USD 78,850

+2.5% (YTD: -10.1%)

Sukuk/bond market index

917.60

+0.1% (YTD: -0.2%)

S&P MENA Bond & Sukuk

151.48

-0.1% (YTD: -0.3%)

VIX (Volatility Index)

USD 16.34

-6.3% (YTD: +10.0%)

THE CLOSING BELL: TADAWUL-

The TASI rose 1.4% yesterday on turnover of SAR 5.9 bn. The index is up 7.9% YTD.

In the green: Spimaco (+7.3%), Rasan (+6.5%) and KEC (+6.3%).

In the red: Najran Cement (-2.1%), Amak (-2.0%) and Saudi Cable (-1.9%).

THE CLOSING BELL: NOMU-

The NomuC rose 1.2% yesterday on turnover of SAR 30.1 mn. The index is up 3.1% YTD.

In the green: Mulkia (+15.9%), First Avenue (+9.6%) and HKC (+7.1%).

In the red: Alfakhera (-6.5%), Hamad bin Saedan Real Estate (-5.6%) and Naas Petrol (-5.3%).

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