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The US dollar has been on the back foot due to Trump. However, it can rebound. Good data so far this week has been promising.

Here is their view, courtesy of eFXnews:

The market reaction to the Fed says more about market expectations than it does about the statement. The policy statement contained mark-to-market changes to the economic assessment and some minor tweaks on inflation. The inflation upgrade argues that the Fed would like to keep the Mar meeting live, but the uncertainty surrounding economic policy will likely force it to hold its powder dry until Q2.

For the USD, we don’t see the statement altering our outlook for measured strength in into H1. The knee-jerk response argues that the market was looking for more concrete signals about the timing of the next hike this quarter. Even so, we view the language that inflation “will” rise as encouraging, suggesting that the Fed has started to embrace the notion that the economy is running at full capacity.

The recent rounds of verbal intervention in the USD have probably spooked the FX markets to some degree, but over time we believe that their impact will fade.

The first chart shows that the USD premium to G10 rate spreads has been priced out, indicating a much cleaner valuation since the election.

For near-term direction, that leaves G10 FX looking towards NFP with a healthy number likely to stem some of the recent USD weakness.

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