USD: Still torn? – Credit Agricole | Forexlive

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.