USD’s renewed upward momentum reinforced by hawkish Fed update – MUFG

The US dollar continues to strengthen following more hawkish than expected Federal Reserve policy update. Economists at MUFG Bank expect the greenback to stay strong in the next months after hawkish comments from Fed Chair Jerome Powell.

Fed Chair Powell opens door to even faster rate hikes 

“Powell dropped guidance that rate hikes were likely to be ‘gradual’. At the same time, Powell emphasized that the US economy was ‘in a very different place’ than it was in 2015 when it started the last tightening cycle with stronger growth, a stronger labour market and much higher inflation. It suggests that the Fed is planning to raise rates faster than in the previous tightening cycle.”

“The hawkish policy update from the Fed supports our outlook for the USD to strengthen further at the start of this year  and will continue to provide a more challenging backdrop for riskier assets and currencies.”