USD Index to stage a stronger rally if Fed disappoints expectations for a slowdown in the pace of hikes – MUFG

The US dollar is staging a modest rebound following the heavy sell-off. Market participants are becoming more confident that the Fed will at least slow the pace of hikes. The Fed needs to disappoint these expectations to provide further fuel to the greenback, economists at MUFG Bank report.

All eyes on next week’s FOMC meeting

“The US Dollar Index has found support at the bottom of its recent trading range between 110.00 and 115.00. However, the scope for the US dollar to extend its rebound ahead of next week’s FOMC meeting should remain limited given that market participants will still be nervous over a potential dovish shift in Fed policy guidance that could quickly pull the rug from under a dollar rebound.”

“For the US dollar to stage a stronger rally, the Fed will need to disappoint market expectations for a slowdown in the pace of hikes later this year.”