UniCredit Research analysts say that the dollar could rise after the Federal Reserve’s policy announcement due at 1800 GMT, even as interest rates are expected to be left unchanged at 5.25%-5.50%, if there are hints that rates could increase further.
According to a note from the analysts, the decision shouldn’t dent dollar strength and “might even lift it a little further” if Fed Chair Jerome Powell “leaves the door open for another hike by the end of the year.” This could lift the DXY dollar index further beyond 105 and potentially drag EUR/USD below 1.0633, they say.
The DXY trades steady at 105.205 while EUR/USD is unchanged at 1.0683. Markets price another 11 basis points of rate increases later this year, Refinitiv data show.
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Dollar Could Rise if Fed Hints at Further Rate Increases
The dollar could rebound after the Federal Reserve’s policy announcement on Wednesday, even if interest rates are left unchanged. UniCredit Research analysts say that if Fed Chair Jerome Powell leaves the door open for another rate hike by the end of the year, it could lift the dollar index further beyond 105 and drag EUR/USD below 1.0633.
The Fed is widely expected to keep rates unchanged at this meeting, but investors will be closely watching Powell’s comments for any clues about the central bank’s future plans. If Powell hints that the Fed is willing to raise rates further to combat inflation, it could boost demand for the dollar as investors seek out higher-yielding assets.
A stronger dollar would be negative for other currencies, such as the euro and the yen. It would also make imports cheaper for US consumers, but it would make US exports more expensive for foreign buyers.
Overall, the dollar is likely to remain in the spotlight this week as investors await the Fed’s policy decision and Powell’s comments. If the Fed hints at further rate increases, it could give the dollar a boost.