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“While the DXY dollar index turned lower following the dovish leaning of the FOMC on January 29, it remains above its January 21 level,” note Rabobank analysts.

Key quotes

“Text book economics imply that the expectation of rate cuts from the Fed should have the capacity to undermine the USD. However, insofar as weakening US growth is likely to spark a broad drop in risk appetite, any losses for the USD could be offset by safe haven demand.”

“Additionally, since a slowdown in US growth would also imply an increased risk of policy easing from other central banks, there may be only a modest change in interest rate differentials. Last year’s Fed rate cuts failed to reverse the theme of USD strength and it is our view that any USD losses caused by Fed rate cuts this year are likely to be moderate.”

“While the JPY may continue to outperform the USD in any decline in risk appetite, it is our view that as long as risk appetite is depressed that the USD will remain well supported against a broad range of currencies.”