US Dollar: Rate expectations shift as the tone softens – MUFG

The US Dollar’s upward momentum has eased as markets pare back expectations of an October Fed rate hike following disappointing US housing data, according to MUFG’s Lee Hardman. The currency is trading modestly lower, but MUFG continues to forecast one further Fed rate increase in December despite the softer housing indicators. While signals of less tightening in the near term have weighed on the Dollar, additional hikes remain likely.

Is Fed repricing curbing the Dollar’s momentum?

"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 editor reviewed this article, which was produced with assistance from an Artificial Intelligence tool. Find out more.)