Fed unlikely on its own to reverse bearish trend for the USD – MUFG

The US Dollar has remained at stronger levels following the Fed’s hawkish policy update. However, the Fed is unlikely on its own to reverse the bearish tend, economists at MUFG Bank report.

Fed to step down the pace of hikes again to 25 bps in February

“The Fed’s hawkish policy update will provide more support for the US Dollar in the near-term as it serves as a reminder to market participants not to get too carried away in pricing in bigger dovish pivot from the Fed. However, it is unlikely on its own to reverse the bearish tend that has been in place for the USD since the October US CPI report was released.” 

“Building evidence of softening inflation will discourage the Fed from raising rates as much as planned especially if evidence emerges as well of weakness in the labour market.”

“We still expect the Fed to step down the pace of hikes again to 25 bps in February and doubt it will raise rates above 5.00%.”