CIBC Research discusses the USD medium-term outlook and targets the USD Index (DXY) at 100.21 in Q3 and 98.76 by year-end.

"On a forward looking basis, we see the USD rally as being cyclical rather than structural. In the short term we do see risks that the USD can extent slightly further into mid summer. Cyclical sectors of the US economy are beginning to pick up more materially, likely due to a combination of fading tariff uncertainty/impact, large OBBBA tax refunds, and an AI driven CAPEX cycle. This is notable in the labour market, with highly cyclical jobs, hours worked, and wages picking up (second chart). The next leg may be for coincident/lagging sectors to feel some of this uplift, and this could see Fed pricing shift cuts out of 2027 with increased odds of a mid-cycle adjustment. And importantly for the USD is that there is currently a lack of growth elsewhere in the world, with Asia showing some weakness, and Europe dealing with the effects of the energy spike; this accentuates the importance of this small cyclical uplift in the US," CIBC notes.

"These views are central to our bias to fade USD strength within the coming months. We expect the DXY to selloff towards 98 by Q4 of this year," CIBC adds.