The US Dollar is continuing to trade close to recent highs ahead of today’s FOMC meeting. Economists at MUFG Bank discuss Greenback’s outlook.
Hawkish hold from Fed to support USD
We expect the Fed to deliver a hawkish hold that keeps alive the option to hike again later this year but also reduces the number of planned cuts in 2024.
The median terminal rate for 2023 is expected to remain at 5.625%, and there is a risk that the 2024 median terminal rate moves higher to 4.875% if submissions rise to suggest higher for longer rates ahead.
There has been speculation amongst market participants recently over a higher neutral policy rate given the resilience of the US economy so far this year to higher rates. The developments should be supportive for a stronger US Dollar.
The main risk would be if the Fed pulls plans for one final hike and Chair Powell signals more strongly that the hiking cycle is now over.
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