The peak of the Fed policy cycle is likely to be negative for the USD – Scotiabank

The USD is ending the week trading mixed versus the majors. Shaun Osborne, Chief FX Strategist at Scotiabank, analyzes the greenback outlook.

Dollar’s general outlook is poised to remain soft

USD’s undertone remains weak but the broader sell-off is, I think, looking a little stretched, at least in the short run.

While the DXY has stabilized, there is little sign from price action of a turnaround in losses and the Dollar’s general outlook is poised to remain soft and markets consider whether the Fed can or will fully deliver on the implied hikes in this week’s dot plot.

The peak of the Fed policy cycle is likely to be negative for the USD; risk assets should respond positively and investors will be more inclined to move capital away from the relative safety of the USD to riskier, higher-yielding assets in anticipation of some relaxation in monetary policy.