Dollar Downside Risk Rises as Fed Expectations Shift

The US dollar has faced renewed downside risk due to market expectations for further Federal Reserve tightening being scaled back, according to Commerzbank.

Volkmar Baur of Commerzbank notes that the dollar's weakness against the euro is largely attributed to the recent revision in market expectations. Since December, higher US rate expectations have supported the dollar, but the trend has reversed.

Commerzbank forecasts three US rate cuts next year, which would put pressure on the dollar. The recent trend of scaling back expectations for the Fed compared to other G10 central banks suggests that the dollar's strength may not be sustainable.