Fed policy update refrains from derailing bearish USD trend – MUFG

The greenback has continued to trade at weaker levels following the latest FOMC meeting. The US Dollar Index has fallen closer towards the lows from earlier this year at just below the 90.000-level. According to economists at MUFG Bank, the US dollar is vulnerable to further weakness in the near-term.

Fed’s assessment of risks to the economic outlook from the pandemic was scaled down

“The Fed maintained their very dovish policy stance despite acknowledging the robust US economic recovery at the start of this year. The lack of any hawkish policy shift last night from the Fed has encouraged an extension of the bearish US dollar trend that has been in place this month.”

“The combination of improving global growth and Fed’s commitment to maintain loose monetary policy remains supportive for risk assets, and has helped lift MSCI’s ACWI global equity index to record highs this month.”

“The bullish update to their outlook for the US economy did not prompt the Fed to alter their dovish policy guidance. Chair Powell reiterated that the Fed is still far away from withdrawing support for the US economy, and was not yet thinking about thinking about tapering QE.”

“The developments support our view that it is likely too early to expect the Fed to alter their policy stance in light of their new policy goals. When evidence continues to build over a robust recovery in the first half of this year, the Fed will be in a better position to prepare markets for tapering QE heading into the summer. It leaves the US dollar vulnerable to further weakness in the near-term.”