Fed pause will mark an important point in prompting US Dollar weakness – MUFG

Economists at MUFG Bank still question the logic of a “skip” scenario from the FOMC and discuss the implications for the US Dollar.

A pause will likely be viewed ultimately as that rather than a “skip”

Of course, an increased dot in 2023 and/or in 2024 along with a hawkish communication tonight will potentially counter any easing of financial conditions and could see the USD strengthen. But beyond the very near-term reaction, the question is would Dollar strength and higher rates be sustained? We see it as unlikely. In the end, a pause is a pause and will likely be viewed ultimately as that rather than a ‘skip’ given the incoming data is likely to continue to warrant an end to this tightening cycle. 

We think the Fed will pause for good this evening, although Powell may try and convince us otherwise. Ultimately, it will mark an important point in prompting US Dollar weakness.

See – FOMC Preview: Banks expect the Fed to take a break, but signal higher rates ahead