Further US dollar strength and then a reversal weaker – MUFG

FXStreet Insights Team FXStreet

The US Dollar Index (DXY) jumped by close to 3.0% in June. Economists at MUFG Bank expect the greenback to remain on solid foot before reversing back lower by year-end and more evident in 2023.

No let-up from the Fed as inflation fight is the primary focus

“We can now say that the FOMC rates guidance (dots profile) has become much more aligned with market pricing of what is required to bring inflation back under control. This suggests that the rate spread dynamic that helped fuel US dollar strength could now be reaching an end. However, the window for US dollar strength is not closed yet and the consequences of market rates reaching the levels consistent with fighting inflation risks mean the negative growth implications that still lie ahead.”

“Tighter financial conditions will likely fuel further US dollar demand as equities decline and risk aversion increases.”

“Tighter financial conditions in Q3 mean further US dollar strength is likely but the start of a pause before the scope for some monetary easing in summer 2023 means the trend of US dollar appreciation should turn before the end of this year and become clearer in 2023.”

See – US dollar: Forecasts from seven major banks, strength to fade next year

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FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

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