US Dollar: Fed stress test shapes path into June FOMC – DBS

DBS Group Research’s Philip Wee argues that strong US nonfarm payrolls and a projected jump in May CPI to 4.2% YoY should keep the Dollar supported into the June FOMC. However, he warns that USD strength may fade afterwards if new Fed Chair Kevin Warsh cannot convincingly defend Federal Reserve independence during what he calls a structural "stress test".

USD support into but not after FOMC

"Last Friday’s significantly stronger US nonfarm payrolls report has forced the market to price out any remaining structural easing bias, putting the prospect of a Fed hike in 2026 firmly back on the table."

"Apart from May’s 172k beating the 88k consensus, the upward revision to April’s 115k to 172k should neutralize the hawkish setups expected from other central banks in the Eurozone, Japan, and New Zealand, keeping the USD bid into the June 16-17 FOMC meeting."

"On June 10, markets will brace for May CPI inflation to jump to a three-year high of 4.2% YoY."

"In summary, the upcoming June FOMC meeting is no longer just a routine policy review."

"The USD’s trajectory will depend not solely on incoming data but on whether the Fed can survive its first major structural "stress test" without cracking from within."

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