ANZ Research discusses the USD outlook and sees a limited scope for further downside in the near-term.
"Markets are convinced that the FOMC’s aggressive rate hikes will be successful in bringing down inflation, but at the expense of a sharp slowdown in economic growth. Rate cuts have been priced in over the second half of next year and breakeven inflation expectations have declined, helping to lower the US 10-year bond yield. As a result, the DXY has come off its recent cycle high. However, we are of the view that the Fed will not be cutting rates as early as what the market is pricing in, given that inflation will still be above the 2% target by the end of next year and we are not in the hard-landing camp," ANZ notes.
"With the Euro Area (EA) still facing growth/inflation/political challenges, it is hard to see the European Central Bank (ECB) hiking too aggressively from here. The Bank of Japan (BoJ) continues to stick firmly to its yield curve control. So, while we’ve probably seen a DXY peak, there is a limit to how far it will fall in the near-term," ANZ adds.