Bank of America Global Research discusses the USD outlook around tomorrow's July FOMC policy meeting.
"We look for the Federal Reserve's rate decision to keep the dollar in our anticipated range near parity. We recently lowered our near-term forecast for EUR-USD to 1.00, but kept our forecast for the end of the year at 1.05. And we generally look for continued near-term USD strength, having also lowered in particular our outlook for higher beta Dollar Bloc currencies. While central bank policy to inflation shocks has been a key driver for FX, a 75bp move would largely meet expectations, in our view," BofA notes.
"Upside risk for USD lingers from an FOMC upside surprise, although that feels less likely given the recent data, and given the Bank of Canada has already set the recent standard for central bank moves with its 100bp rate hike a couple of weeks ago. However, despite our moderate upside baseline projections for EUR-USD into next year, we would look for longer term downside risks for EUR-USD from more fundamental issues in Europe around gas sanctions along with a further escalation of the war in Ukraine, which would also test ECB credibility," BofA adds.