US Dollar: Dip after FOMC but strength expected – HSBC

Following the July Federal Open Market Committee (FOMC) meeting, the US Dollar (USD) experienced a dip, but analysts from HSBC anticipate a strengthening trend. The Federal Reserve (Fed) maintained interest rates at 3.50-3.75%, despite some dissenters advocating for a rate increase. Chair Jerome H. Warsh provided a doveish market interpretation of his comments without explicitly signaling a near-term rate hike.

This interpretation negatively impacted the USD, as market expectations for rate hikes were modestly adjusted downward. The central bank's Chair emphasized the shared commitment to bring inflation to the 2% target and discussed four key questions, including the impact of recent economic shocks and supply-chain strains. While the Federal Open Market Committee (FOMC) did not deliver a hawkish tone, the focus on achieving 2% inflation leaves room for potential tightening measures if necessary.

HSBC remains confident in the USD's long-term outlook, driven by resilient US economic activity and widening interest rate differentials. The USD is expected to gain strength despite recent setbacks and geopolitical risks, including the US-Iran conflict.