MUFG Bank: inflation data and FOMC meeting can cause an increase in the dollar at the end of the year

This week will be crucial for the dollar’s dynamics till the end of the year. The last CPI report in the States will be released, and the last FOMC meeting of this year will be held. Economists at MUFG Bank admit that the dollar is likely to trade in short positions next week.

Market participants wait for a signal confirming that the underlying inflation pressures will continue to weaken. This should decrease the dollar convertibility at the end of the year. In this case, a sharp increase in inflation can provoke an even stronger market reaction after the recent dollar’s weakening. 

The Fed made it clear that it will increase the rate by 50 and not by 75 basis points. The dollar’s dynamics will depend on two factors. The first one is information from Chair Powell about the rate increase slowing at the next FOMC meeting. This can cause an American currency decline. Another factor is the Fed report on the rate increase to the new high above 5.0%. Such an increase should happen in 2023 and last till 2024, creating upside risk for the dollar.