Citi Research discusses the USD outlook in light of yesterday's several important dovish changes to the FOMC statement.
"Citi analysts note that the market has reacted dovishly to the June FOMC. But while the statement and dots keep cuts as early as July squarely on the table, the outcome does not change Citi’s base case for “no cuts in 2019” – which Citi analysts note also remains the base case of a slim majority of Fed officials. The statement removes “patient” to replace it with “closely monitoring” conditions - this likely signals that the committee will cut rates should downside risks to the outlook materialize. Citi analysts also say that should the Fed cut, the most likely scenario is a 50bp cut in July and an early end to balance sheet reduction," Citi notes.
"Citi analysts also remind us that the greenback tends to weaken in the 1-2 months heading into the first cut of the cycle. With positioning relatively light, the trend is unlikely to change this time around and there remains further room for tactical USD weakness should the Fed gear up for action," Citi adds.