US Dollar: Fed restraint supports gains against peers – OCBC

FXStreet Insights Team FXStreet

OCBC strategists Sim Moh Siong and Christopher Wong have reset their forecasts after the earlier US Dollar (USD) sell-off but still projects moderate USD strength into early 2027. They highlight Fed Chair Warsh’s hawkish Jackson Hole tone, resilient US growth and sticky inflation as reasons policy should stay restrictive, underpinning the Dollar and keeping US Dollar Index (DXY) on a gently higher trajectory.

Policy restraint underpins USD outlook

"We have marked our forecasts to market following the USD's earlier decline, which was driven by policy uncertainty after the Treasury's surprise EUR/JPY intervention and expanded buyback plans. Even so, we continue to expect modest USD strength into early 2027."

"We have updated forecasts after the earlier USD sell-off but still expect moderate USD strength into early 2027. Warsh's hawkish tone reinforced Fed credibility, while resilient growth and sticky inflation should keep policy restrictive and support the USD."

"Market pricing also resembled the post-June FOMC reaction, with investors refocusing on inflation risks and central bank credibility. A resilient labour market, sticky inflation and the Fed's determination to protect its anti-inflation credentials should keep policy biased toward restraint, providing ongoing support for the USD."

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