MUFG Research discusses maintains a bearish USD bias over the remainder of the year.
"The loss of confidence in US regional banks and sharp tightening in financial conditions has triggered an extreme reaction in global fixed income markets where yields have plunged since late last week. It has been the largest drop in US yields in such a short space of time since the Black Monday shock in October 1987. The dramatic shift in rate hike expectations highlights that market participants currently view the regional bank crisis as a strong indication that the Fed’s hiking cycle is coming to an end," MUFG adds.
"While it could prove to be an overreaction, the developments do provide further evidence the sharp rise in US rates over the past year or so is still feeding through with a lag, and will help to further slow the US economy and inflation going forward. It supports our decision to maintain our outlook for a weaker US dollar this year despite the recent rebound in February," MUFG adds.