FOMC’s policy change sets the scene for prolonged decline in the USD

The dollar has continued to weaken since the onset of the new year. Economists do anticipate a policy change from the FOMC in the first quarter of 2023, which would set the scene for a more prolonged decline.

Given that Inflation easing more than expected, markets forecast that the Fed will be forced to lower interest rates in the first half of 2023. It would be a mistake for the Fed to persists in raising its key rate beyond the current level and holding it there for an extended period if inflation continues to surprise on the downside.

Economists also still anticipate a policy change from the FOMC in the first quarter of 2023, which would set the stage for a more prolonged decline in the dollar. The Dollar looks oversold at this stage and they believe a temporary rebound is possible in the coming weeks, as markets have not become certain about a tangible change in the Fed’s policy direction.