Fed Chair Powell’s strong affirmation that the Federal Reserve remains on a dovish path extinguishes near-term upside DXY potential. Nevertheless, strong US rebound signals in coming weeks will limit excessive DXY downside, analysts at Westpac inform.
Key quotes
“Fed Chair Powell resoundingly beat back growing doubts that the Fed could maintain a dovish track as growth rebounds. That should anchor the front end and leave the DXY wounded near-term. DXY could easily trade sub-91 in the coming days.
“A lack of front-end yield support for the DXY has been in place since the covid crash and it’s not entirely obvious that the DXY is about to slide all the way back to fresh lows sub-89. Yield spread support continues to build in the DXY’s favour at the back-end of the curve.”
“Growth differentials are decisively swinging back in DXY’s favour too, especially versus Europe, where covid and vaccine challenges continue to hamper near-term rebound prospects.”
“DXY likely trades a 90-93 range in coming weeks, the Fed’s dovish commitment clashing with a resounding US activity rebound, leaving DXY contained for now.”
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