The US Dollar weakened against all other G10 currencies last week with the exception of the Yen. Economists at MUFG Bank discuss USD outlook for the week ahead.
One of the important risk events for the US Dollar in the week ahead will be the semiannual monetary policy testimony from Fed Chair Powell to Congress delivered on Wednesday and Thursday.
We expect Chair Powell to deliver a similar message to the one at last week’s FOMC meeting. The updated dot plot revealed that the majority of FOMC members now favour delivering two more hikes by the end of this year. Yet the US rate market is still not convinced that the Fed will deliver two more hikes and is currently pricing in only around 21 bps of further hikes by September. However, we do not expect Chair Powell to push back hard against those expectations in his testimony this week.
We continue to believe that building evidence of disinflation pressures will discourage the Fed from following through on current plans to deliver two more hikes and see room for the US Dollar to weaken further as the Fed becomes less hawkish.
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