Credit Agricole Research discusses the USD outlook and maintains a cautious bias in the near-term.
"The FOMC Minutes and the US CPI data left US yields and the USD lower. May is looking increasingly as though it could be the Fed’s last rate hike before a pause given decelerating inflation and the US banking turmoil leading to a tightening in local credit conditions. Indeed, the FOMC Minutes show that in the absence of the banking turmoil, members would have considered a 50bp hike and raised their growth, inflation and Fed Funds rate forecasts, but instead left them unchanged," CACIB notes.
"So the US banking turmoil leaves the Fed hiking less, but importantly not cutting rates as the Minutes also point out members prefer to use liquidity measures rather than rates to address banking issues. So the USD still appears torn. A 25bp rate hike in is priced in at about 70-75% across May and June, but following that the US rates market still thinks the Fed will be cutting rates in late 2023," CACIB adds.