Economists at Société Générale discuss USD outlook ahead of US Consumer Price Index (CPI) data and FOMC.
Dollar down vs Euro last four FOMC meetings
The US Dollar Index faces a battle in the week ahead to avoid a relapse to the lows of May if 1/ US CPI does not surprise to the upside, and 2/ the Fed does not raise rates on Wednesday. A hawkish pause could limit losses however if the statement maintains optionality to raise rates again July.
The dot-plot and updated inflation and unemployment rate forecasts could be crucial to how broader asset markets and hence FX responds. A 25 bps increase in the fed funds target range to 5.25% 5.50% would be a small shock and would give 2y yields another boost and spark profit-taking in G10/USD.
The Dollar has generally struggled at the last four FOMC meetings, weakening against the Euro on four occasions and against Sterling and the Yen on three occasions
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