The Fed’s updated guidance should reinforce the USD’s upward momentum in the near-term – MUFG
The US Dollar has continued to strengthen following the FOMC meeting. Economists at MUFG Bank analyze Greenback’s outlook.
The Fed plans to keep rates higher for longer
While the Fed left the policy rate unchanged, the updated guidance provided a stronger signal that the Fed plans to keep rates higher for longer. It has prompted the US rate market to scale back expectations for rate cuts from the Fed next year. Almost 50 bps of cuts have been taken out of the US curve so far this month which is helping to provide more support for the USD.
There is a higher risk of one final hike in November or December although weaker economic activity and core inflation data in Q4 should deter the Fed from delivering on those plans. Similarly, we expect to see a bigger negative impact on the US economy in the year ahead from the lagged impact of aggressive tightening to date that will encourage the Fed to cut rates more than the planned 50 bps by the end of 2024.
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FXStreet Insights Team
FXStreet
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