Upward momentum remains in place for USD ahead of FOMC meeting – MUFG

The Dollar is continuing to trade close to recent highs after regaining upward momentum at the end of last week. Economists at MUFG Bank analyze Greenback’s outlook.

The main downside risk for the USD would be if the Fed scraps plans for one more hike

The Fed is expected to leave rates on hold. 

Market attention will mainly focus on the Fed’s updated economic projections and forward guidance. We expect the updated projections to include a significant upward revision to the US GDP forecast for this year while the core inflation forecast will be lowered. 

The main downside risk for the USD would be if the median projection for one last hike this year is removed, and Chair Powell signals that the rate hike cycle has reached an end. But any correction should again prove short-lived. 

We still believe that upward momentum continues to favour further USD upside in the near-term while the US economy is outperforming.