Dollar Rises on Policy Uncertainty Ahead of Key Fed Decisions
The US Dollar (USD) is gaining strength due to policy uncertainty, according to Geoff Yu from BNY. A softer June Consumer Price Index (CPI) has reduced immediate inflation concerns, but limited guidance from the Federal Reserve continues to support uncertainty and a stronger USD.
This week's events, including Wednesday's FOMC decision and Thursday's Personal Consumption Expenditures (PCE) Price Index release, could lead to significant moves in front-end rates, foreign exchange, and risk assets. The FOMC meeting is particularly notable as the new Fed leadership has offered less forward guidance than markets are used to.
The current setup suggests that even small shifts in tone from the FOMC statement and press conference could move front-end rates materially. Yu believes that the below-expectation June CPI print will allow the Fed to remain on hold, but the resurgence of conflict might push inflation higher later in the year.