USD Strengthens as US Macro Backdrop Supports Hawkish Fed Hold

The US dollar strengthened last week due to higher crude oil prices widening its relative growth outlook advantage over energy-importing economies. The Fed is expected to keep the target range for the funds rate at 3.50%-3.75% for a fifth straight meeting, with a 10-2 vote split anticipated, and comments from Fed officials suggesting that the risks continue to be strongly weighted toward higher inflation.

The Bank of England (BOE) is also expected to keep its policy rate at 3.75% for a fifth straight meeting, with a unanimous decision seen as most likely, but there's a risk of a more hawkish outcome if Fed Governor Lisa Cook joins the dissenting votes.

Meanwhile, the Bank of Japan (BOJ) is widely expected to keep its policy rate at 1.00% after delivering a well-telegraphed 25bps hike in June, with inflation running below the bank's 2% target.