The US Dollar (USD) lost ground after the Fed decision. Economists at Commerzbank analyze Greenback’s outlook.
A rate cut for 2024 could still fall by the wayside, which would be Dollar-positive
Not much appears to have shifted fundamentally: June is reemerging as a focal point for the first rate cut, rather than July, and this sentiment may persist as the Fed maintains its data-driven approach. Looking ahead, interest rates could potentially trend higher than previously anticipated, which could favor the Dollar. Market sentiment seems to be aligning with this view, especially following positive economic surprises this week.
Furthermore, it’s unlikely that the Fed could surprise on the dovish side at this juncture. Attention is now honing in on June unless there’s a dramatic deterioration in economic data in the coming weeks, which seems improbable. However, if inflation persists at elevated levels beyond the initial months of the year, and transitions from short-term spikes to longer-term plateaus, the possibility of rate cuts in 2024 could diminish, lending support to the Dollar.
Nevertheless, much remains uncertain, and clarity will likely only emerge over time as we await further data releases and comments from FOMC members in the coming weeks. It’s prudent to be prepared for potential fluctuations in the Dollar as we navigate this evolving landscape.
