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Jun 10 - 12:55 PM

MUFG: USD Outlook Ahead of US CPI Print and June FOMC Meeting

By eFXdata  —  Jun 10 - 10:45 AM


MUFG analyzes the potential impacts of the upcoming US CPI report for May and the June FOMC meeting on the USD. The firm explores scenarios based on varying CPI outcomes and their implications for the Federal Reserve's rate cut plans, highlighting the increased uncertainty and potential for a stronger USD in the near term.

Key Points:

  1. Upcoming CPI Report:

    • The US CPI report for May, set to be released ahead of the FOMC meeting, adds uncertainty to the Fed’s policy direction.
    • An upside surprise in the CPI could lead the Fed to reduce its planned rate cuts for this year from three to just one.
  2. FOMC Meeting Implications:

    • The FOMC meeting on Wednesday will reveal the Fed’s updated policy signal, potentially influenced by the CPI data.
    • A second consecutive softer CPI print could reassure the Fed that the Q1 inflation uptick was temporary, possibly resulting in the scaling back of rate cut plans to two instead of one.
  3. Market Reactions and USD Strength:

    • Current US rate market pricing suggests that a signal from the Fed of only one planned rate cut, or questioning the need for cuts at all, could trigger a significant rally in the USD.
    • MUFG maintains the view that the Fed can cut rates more later this year, contingent on further evidence of slowing inflation and a more marked slowdown in employment growth.
  4. Adjustments to Trade Ideas:

    • Acknowledging the increased risk of a stronger USD for a longer period, MUFG has cut its long EUR/USD trade idea.


MUFG anticipates that the upcoming US CPI report and the June FOMC meeting will be crucial in shaping the near-term outlook for the USD. An upside surprise in CPI could significantly alter the Fed’s rate cut plans and strengthen the USD. Conversely, a softer CPI print could support a more gradual rate cut path. Despite sticking to the view that the Fed may cut rates more later this year, MUFG has adjusted its EUR/USD trade stance, reflecting the heightened risk of sustained USD strength.

MUFG Research/Market Commentary


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