US Dollar: Tone softens as rate expectations shift – MUFG

Disappointing US housing data and lower expectations of an October Fed rate rise have left the US Dollar trading modestly lower, according to MUFG’s Lee Hardman. MUFG nevertheless continues to forecast one further Fed rate increase in December despite the softer housing indicators. With signals of near-term tightening fading, the Dollar’s upward momentum has eased, although further rate rises remain likely.

Dollar loses momentum as Fed expectations ease

"The major FX rates have remained relatively stable overnight with the US dollar continuing to trade at modestly weaker levels."

"The scaling back of October Fed rate hike expectations has helped to dampen the US dollar’s upward momentum in the near-term although further hikes remain likely."

"The negative impact on US dollar from housing market weakness should remain muted though given it is not a major policy focus for the Fed who setting policy to bring inflation back towards their goal in a more timely manner."

"We still expect the Fed to hike rates one more time this year in December and can’t completely rule out the probability of another back-to-back hike this month after the stronger US inflation data for September."

"At the same time, rate hike expectations have been increasing for other G10 central banks including the BoC, BoE and RBA."

(An Artificial Intelligence tool assisted in producing this article, which was reviewed by an editor. Learn more.)