MUFG Research discusses the USD outlook around this week's FOMC meeting and notes that Fed sensitivity to downside risks is key for Fed rate cut expectations.
"The Fed is expected to provide a dovish policy update this week at the latest FOMC meeting. Anything less than a clear signal that the Fed is open to cutting rates soon in response to building downside risks to the US economic outlook could leave financial markets disappointed.
The US rate market is well priced for at least a 25bps rate cut to be delivered by July. The need for a more immediate rate cut rests mainly on the Fed’s sensitivity to downside risks to their economic outlook including the ongoing trade tensions between the US and China," MUFG argues.
"For the US dollar rebound to extend much further in the week ahead, the Fed will have to disappoint expectations for imminent easing," MUFG adds.