After three consecutive cuts, the Fed is expected to hold its rates unchanged. What does this mean for the US dollar?
Here is their view, courtesy of eFXdata:
MUFG Research discusses its expectations for tomorrow’s FOMC policy meeting and for the Fed policy trajectory throughout the year.
“The emergence of the coronavirus and building signs of contagion in the financial markets provides another reason for the Fed to maintain a cautious outlook at this week’s FOMC meeting…We still believe that the risks are skewed towards the Fed’s next policy move being a rate cut rather than a hike, although the Fed is likely to reiterate that they remain comfortable to keep rates on hold this year.
Building fears over the coronavirus have already encouraged the US rate market to price in a higher risk of another Fed rate cut this year. A 0.25 point cut is now judged as more likely than not by the July FOMC meeting,” MUFG notes.
“Nevertheless, the US dollar is well poised to extend its recent advance in more risk-averse trading conditions. The US dollar is also deriving more support from the recent slowdown in the pace of the Fed’s balance sheet expansion. The rising probability of further Fed rate cuts is unlikely derail the US dollar’s strong start to this year at the current juncture,” MUFG adds.
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