US Dollar: Softer tone with shifting rate expectations – MUFG

MUFG’s Lee Hardman notes the US Dollar is trading modestly weaker as US housing data disappoints and markets scale back expectations for an October Fed hike. Despite softer housing indicators, MUFG still expects one more Fed rate increase in December. Meanwhile, reduced near-term tightening signals have dampened the Dollar’s upward momentum even as further hikes remain likely.

Fed repricing weighs on Dollar

"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."

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