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The hawkish FOMC “pivot” throws the US Dollar Index a much needed lifeline. According to economists at Westpac, DXY is unlikely to revisit sub-90 levels anytime soon – scope for 92-93 in the weeks ahead.

The Fed is planning lift-off in 2 years

“The USD is in a much healthier place now the Fed is inching toward the exits. Discussions are actively taking place about talking tapering and a large swathe of the FOMC brought forward the timing of rate hikes, notably, the median dot projects two hikes by end-2023. That brings the Fed closer to market pricing.”

“With the timeline for lifting Fed Funds moving forward and a modest tapering likely to take 12 months or so, the taper timeline has arguably shifted forward too, a start date of late 2021 now looking more likely.”

“A return to sub-90 trade for the DXY seems unlikely near term, if anything there’s scope for multi-day upside toward 92-93 to bring DXY closer into line with yield spreads. But further sustained upside beyond that seems unlikely.”  

“Fed tightening expectations likely need to move forward further still, to 2022 (very unlikely at this stage) and the Fed is likely to remain a G10 taper laggard.”