Policy change from the FOMC to set the stage for a more prolonged decline in the USD – NBF

The greenback continues to weaken in the new year.  Economists at the National Bank of Canada still anticipate a policy change from the FOMC in the first quarter of 2023, which would set the stage for a more prolonged decline.

Inflation easing more than expected

“Markets are embracing our longheld forecast that the US central bank will be forced to lower interest rates in H2 2023. It would be a mistake for the Fed to persists in raising its key rate well beyond the current level and holding it there for an extended period if inflation continues to surprise on the downside.”

“We 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 greenback. That said, the Dollar looks oversold at this stage and we think a temporary rebound is possible in the coming weeks, as we have not yet confirmed a change in the Fed's policy direction.”