Danske Research discusses the USD outlook in light of yesterday's FOMC policy meeting.
"At the FOMC press conference, Fed Chair Jerome Powell had a lot of focus on 'dangers', 'data dependency', 'clouded outlook' and so forth. To us, this is playing a bit of both sides and a more clear (hawkish) message could have been delivered, if he so wanted. At present, high-frequency indicators point towards one more 1% m/m print on the headline CPI and there is mostly tentative evidence that CPI has peaked. That said, markets sold (broad) USD and bought risk on the back of this somewhat ambiguous message. However, looking ahead, we see inflation prints as remaining high amid a cyclical slowdown. If data confirms this, then we also expect Fed to underpin our forecast for seeing EUR/USD towards parity in 12M," Danske notes.
"Our view is that Fed on the margin could have chosen to do more to underline hawkishness - and that we might see a brief pause in the USD rally before we see the next data print/evidence of high CPI and cyclical slowdown but that Fed did not push markets to add to such defensive pricing during the press conference," Danske adds.