USD could stage a modest relief rally if the Fed sticks to current hiking plans – MUFG

The US Dollar has staged a modest rebound ahead of the FOMC meeting. Whether the USD rebound will extend further in the near-term will depend upon today’s Fed policy update, economists at MUFG Bank report.

Will Fed policy update prove pivotal for USD performance?

The Fed is expected to deliver another 25 bps hike which is viewed as a done deal. The market reaction to the policy update will be driven by the Fed’s forward guidance.

The worst outcome for the US Dollar would be if the Fed gives any indication that tonight’s hike could be the last in the cycle triggering a renewed sell-off. On balance, we believe it is still likely a little premature to expect such a dovish signal while the US economy is proving resilient and the Fed would likely want to see more evidence of slowing inflation. 

If the Fed sticks to current hiking plans the US Dollar could stage a modest relief rally.

See – Fed Preview: Banks see a 25 bps hike as “a done deal”, focus on forward guidance