MUFG Research discusses the USD outlook around today's FOMC policy decision.
"The Fed certainly have an incentive to talk hawkishly. The inflation data are clearly good news but market conditions since the last meeting have clearly loosened and the Fed will likely want to curtail that from here. Since the hawkish FOMC on 2nd November, the S&P 500 is up 4.3%; corporate credit spreads have tightened markedly (-50bps on BAA-rated); the 10-year UST bond yield is down over 50bps and the dollar is nearly 7% weaker," MUFG nites.
"Our suspicion at this juncture is that Chair Powell has his work cut out for himself in turning this momentum and any hawkish rhetoric is unlikely to get much traction in the face of yesterday’s weak CPI print. Any US dollar strength on hawkish rhetoric could reverse quickly," MUFG adds.