The recent decline in the US dollar makes MUFG Bank analysts be more cautious about chasing the dollar higher in the short term. They warn that next week’s US CPI report for August poses another downside risk for the dollar.
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“It’s been a volatile week in the forex market. In the first half of the week, the dollar extended its recent advance and reached new highs for the year against other major currencies. On Tuesday, the EUR/USD pair hit a new low YoY at 0.9864, followed by Cable, which hit a new yearly low at 1.1406, and on Wednesday, USD/CNY and USD/JPY, which hit new yearly highs at 6.9799 and 144.99, respectively, after hitting new yearly highs , the dollar has corrected sharply lower in recent days. It was the biggest sell-off in the dollar index since July.”
“The decline in the dollar makes us more cautious when looking for new dollar gains in the short term. We are not convinced that this is the beginning of a more sustained decline in the dollar, but there is a risk that it will continue to fall in the short term “.
“A potential downside risk in the week ahead for the dollar is the release of the latest US CPI for August. The Fed has already downplayed the weaker US CPI report for July, but another weaker US CPI report for August could call into question market expectations of a third consecutive 75 basis point hike later this month.”
Source: Fx Street
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