Economists at MUFG Bank discuss USD outlook ahead of the Federal Reserve policy meeting.
A surprise Fed rate hike will be required to inject renewed upward momentum into the USD
We expect the correction lower for the USD to extend further in the week ahead if the Fed skips the June meeting. However, the sell-off should prove only modest as the Fed leaves the door open to resuming hikes in July, and the ECB pares back their own hawkish policy messaging.
A surprise Fed rate hike will be required to inject renewed upward momentum in the USD and threaten an unwind of FX carry trades that have benefitting from falling FX volatility in the 1H of this year.
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