US Dollar: Fed cautious on further hikes – MUFG

MUFG’s Lee Hardman notes the Dollar index is holding near year-to-date highs even as US rate markets pare back expectations for further Federal Reserve tightening. Softer US data and FOMC minutes signal no urgency to hike again this month, but fiscal and political risks in the Euro area continue to support the US Dollar against major peers.

Dollar supported by Euro risks

"The major foreign exchange rates have remained relatively stable overnight with the dollar index continuing to trade close to year-to-date highs."

"The US dollar has continued to trade at stronger levels even as the US rate market has pared back expectations for Fed rate hikes highlighting that recent gains have been driven more by negative developments overseas."

"The release overnight of the minutes from the last FOMC meeting in September when the Fed hiked rates for the [first] time in response to the energy price shock also gave no sense of urgency to push for a hike again as soon as this month."

"Participants indicated that they would approach each meeting “with an open mind and decisions at future meetings would depend on incoming information and its implications for the outlook and balance of risks”."

"Overall, the minutes were more consistent with the Fed’s plans for one or two more hikes rather than current market pricing for three to four more hikes."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)