The Federal Reserve (Fed) refrained from softening its forward guidance. But markets doubt that the central bank will strictly adhere to the previously announced plan. Therefore, the U.S. dollar is expected to decline. This is reported by Stephane Marion, Chief Economist and Strategist of the National Bank of Canada.
The Federal Open Market Committee (FOMC) took a more hawkish stance at its last meeting, according to the expert. The regulator had been considering further interest rate hikes in 2023. The economist predicted that the central bank is not going to soften its monetary policy until 2024. Thus, the Fed needs to prove that it is determined to comply with its previously announced commitments.
Two-year Treasury bond yields fell below the federal funds rate for the first time in this tightening cycle. This decline followed a speech by Fed Chairman Powell. An inversion at this stage in the economic cycle has often been negative for the greenback, at least until a recession takes hold (which is not the baseline scenario at the moment).