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US Dollar Holds Gains Post-FOMC, MUFG Sees Limited Upside
Developing
In Short: MUFG's Derek Halpenny notes the US Dollar is maintaining post-FOMC gains, citing hawkish guidance from Fed Chair Warsh, but expects further upside to be constrained by other G10 central banks' rate hikes.
MUFG's Derek Halpenny observes that the US Dollar is retaining most of its post-FOMC gains following a 25bps hike and hawkish remarks from Fed Chair Warsh, who stated that the hike 'removed a dose of accommodation.
Halpenny anticipates one more Fed hike, but believes the Dollar's upward trajectory will be limited due to other G10 central banks also raising rates.
The Mexican Peso appreciated against the US Dollar, as Fed Governor Waller's dovish stance and speculation about potential FX market interventions to support the Japanese Yen contributed to the Dollar's weakening.
What's still developing
- The headline grabbing comment from Fed Chair Warsh that the hike had “removed a dose of accommodation” was the clearest signal that a certain level of accommodation still exists and therefore more action will be required.
- That’s a very cautious removal of the two hikes pencilled in for this year that certainly implies a faster reduction in core CPI will require more than just one additional hike." "But while Warsh was hawkish and emphasised again his focus on achieving price stability, the bar was high going into the meeting for a large sell-off in rates and/or advance for the US dollar.
- He supports that decision if the disinflation process evolves, but if a red-hot US CPI report is released next week, he warned that a rate hike is possible.
Sources
- Fxstreetlink