US Dollar: Softer tone with shifting rate expectations – MUFG
MUFG’s Lee Hardman notes the US Dollar is trading modestly weaker as US housing data disappoints and markets scale back expectations for an October Fed hike. Despite softer housing indicators, MUFG still expects one more Fed rate increase in December.
The US Dollar Index (DXY) has slipped to around 101.50 due to expectations that the Federal Reserve will pause interest rate hikes. Recent economic data has painted a weak picture of the US economy, with September housing starts decreasing and pending home sales hitting a record low. The CME FedWatch Tool indicates an 84% chance that the Fed will keep rates steady next week and a 90% chance of a rate hike in December.
Fed Chair Kevin Warsh did not give any hints about future rate hikes last week, adding to the uncertainty. However, surging oil prices due to a drone attack on Saudi Aramco's Shaybah oil field may give the US Dollar a boost, as it raises concerns over potential energy supply disruptions.
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