Fed Boosts Dollar

The US Dollar is ending the week higher, driven by a growing divergence between the Fed and other central banks. While the ECB and BOC both recently cut rates, the Fed this week took a more hawkish stance, revising its inflation forecasts higher for the US and cutting the amount of projected easing this year. The Fed now sees just one rate-cut, down from 3 prior, warning that with inflation still too-high, its easing cycle will likely be delayed. The big risk on the back of this week’s meeting is that if the drop in inflation stalls, easing might end up being postponed this year.

Bearish Risks Remain

While the Dollar is currently rallying, there are bearish risks to note. CPI and PPI this week were both seen falling again last month. If inflation continues to moderate and particularly if we see a deeper fall in coming months, the Fed might well turn more dovish again. Indeed, Fed chairman Powell noted that the outlook on rate cuts was conservative, saying there was room for more cuts dependent on how inflation develops.

Technical Views

DXY

The rally off the 104.05 lows has seen the market breaking back above the 104.97 level and back above the broken bull channel lows. Price is currently stalled into the 105.70 level. However, with momentum studies bullish, focus is on a fresh push higher while above 104.97.