The recent pullback of the US dollar makes analysts at MUFG Bank more cautious over chasing the greenback further to the upside in the near term. They warn that next week’s US CPI report for August poses another downside risk for USD.
Key Quotes:
“It has been a volatile week in the foreign exchange market. In the first half of the week the dollar extended its recent advance hitting fresh year to date highs against other major currencies. EUR/USD hit a fresh year to date low of 0.9864 on Tuesday followed by cable hitting fresh year to date low at src.src406, and USD/CNY and USD/JPY hitting fresh year to date highs at 6.9799 and src44.99 respectively on Wednesday. After putting in place fresh year to date highs the USD has since corrected sharply lower in recent days. It has been the largest sell-off for the dollar index since July.”
“The pullback for the USD has made us more cautious over chasing further USD upside in the near-term. We are not convinced that it is the start of a more sustained reversal lower for the USD, but there is a risk it could drop further in the near-term.”
“One potential downside risk in the week ahead for the USD 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 CPI report for August could challenge market expectations for a third consecutive 75bps hike later this month.”
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