CIBC Research discusses the USD outlook and targets the USD Index (DXY) at 99.70 by the end of Q

March was a tough month for the greenback. Indeed, trade-weighted gauges of the US dollar fell as it became clear that banking system stresses were emerging after the most aggressive tightening cycle in decades. For the Federal Reserve, there were clear implications that ultimately meant two things. First, that the proximity to the terminal rate was closer than thought beforehand. This was communicated at the March meeting – and it supported our existing call for one final hike in May before the Fed stands pat for the rest of the year. Second, that the Fed might have to think long and hard about its hyper-aggressive QT program going forward. The Fed’s response to this episode has led to an expansion of its balance sheet that has effectively offset a significant portion of the QT program to date," CIBC notes. 

What’s more is that QT looks out of place when there’s greater competition among banks for deposits in the US. A slowing, or even a stoppage of QT is not in the price for the USD – which means that risks are still tilted to the downside in the months ahead," CIBC adds.