Analysts at MUFG Bank raise their USD forecasts for the fourth quarter of 2021 and the first one of 2022. They continue to see some upside potential in the near term.
“The US dollar is strengthening in the aftermath of the updated guidance from the FOMC and Fed Chair Powell on Wednesday evening. There were certainly no big surprises and the announcement of the taper plan was exactly as had been indicated in the minutes from the last FOMC meeting. There is flexibility in the pre-set pace reduction of USD 15bn (USD 10bn UST; USD 5bn MBS) and based on incoming data could be accelerated or slowed down. The termination point is therefore as expected also and despite our view that Chair Powell erred on the dovish side in his communications the short-end of the rates curve actually increased modestly, thus providing some support for the dollar.”
“September rate hike is more than priced. The limited response to the dovish tilt to Fed communication is down to the fact that ultimately it will be incoming data that will dictate policy changes. The speed of tapering could alter and the markets for now consider a faster taper more probable than a slower taper. That bias makes sense with the ADP data this week pointing to upside risks for the jobs report and other data this week has also been strong. The leveraged market is already positioned long USD and the Fed’s communication won’t discourage that.”
“We raised our USD forecasts for Q4 and Q1 2022 and we continue to see near-term upside potential for the US dollar.”
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