The US dollar dropped by 2.1% in April, reversing nearly all the gains recorded in March. The very strong message from the Fed in April signalling continued determination to maintain ultra-loose monetary policy will ensure no sharp move in rates and therefore help keep the US dollar at weaker levels, as reported by MUFG Bank.
FOMC to maintain a cautious stance
“A key factor going forward in holding a moderately bearish USD call is the continued dovish guidance from the Federal Reserve despite the surge in GDP growth now unfolding. While the FOMC acknowledged the brighter outlook ahead there was no shift in communication on the timing of a change in policy stance.”
“Most of our G10 relative yield curve regression models point to further US dollar weakness. That would change if there was a substantial further move to the upside for yields. Furthermore, under a scenario of a more synchronised global growth upturn, other G10 central banks will be shifting their QE/rate guidance either before or around the same time as the Fed, limiting the scope for USD strength.”
“The US dollar has a tendency to weaken in the early stages of a global growth upswing but our implied 3.4% drop in DXY reflects US economic strength.”
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