MUFG Research discusses the USD outlook around tomorrow's FOMC policy meeting.
"The main focus for Fed this week though will be to provide more support for the US economy which is undergoing a “mid-cycle” adjustment. The Fed is set to deliver another 25 basis point rate cut this week. The US rate is already fully priced for such policy action," MUFG notes.
"More important for US dollar direction will be the updated forward guidance from the Fed. Similar to at the July meeting, we believe that the updated guidance poses more upside risks for the US dollar although Fed Chair Powell is likely to be more aware of how market participants responded hawkishly to the description of the Fed’s easing cycle as just a “mid-cycle adjustment”.
We believe that the Fed will want to leave the door open to at least one more rate cut this year but is unlikely to go as far as validating three more rate cuts priced into the US yield curve for the year ahead...In these circumstances, the US dollar should remain persistently strong especially after the ECB went all in to ease monetary policy last week," MUFG adds.