Stronger USD heading into year-end amid higher terminal rate expectations – MUFG

The US Dollar has continued to trade at stronger levels after the Fed dashed hopes again for a dovish policy pivot. Higher terminal rate expectations for Fed's hiking cycle are set to continue strengthening the greenback into year-end, economists at MUFG Bank report.

The Fed is shifting to plans for a slower but more extended hiking cycle

“The US rate market is now pricing in 62 bps of hikes at the December FOMC meeting as it weighs up whether the Fed will deliver one final 75 bps hike or step down to a 50 bps hike.” 

“The updated policy statement added as well that the Fed would take into account ‘the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments’.”

“The comments signal that the Fed is shifting to plans for a slower but more extended hiking cycle. The increase in market expectations for the Fed’s terminal policy rate support our outlook for an even stronger US dollar heading into year-end.” 

WANT DIRECT TALK TO OUR EXPERTS CONTACT MONEY LIFE RESEARCH

USD Index Price Analysis: Upside target remains at 114.00

• DXY comes under pressure soon after hitting daily highs near 111.60.
• Next on the upside still emerges the 114.00 region.

DXY reverses three consecutive daily advances and slips back below the 110.00 mark on turnaround Tuesday.

Despite the ongoing corrective downside, the near-term bullish stance in the dollar remains unchanged and with the immediate target at the 114.00 area ahead of the 2022 high at 114.78 (September 28).

The near-term upside bias is expected to hold while above the 8-month support line near 108.60. The proximity of the 100-day SMA also reinforces this area of contention.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 104.22.

WANT DIRECT TALK TO OUR EXPERTS CONTACT MONEY LIFE RESEARCH