Even after its broad-based appreciation today, the US dollar seems set to end the week a bit lower against most major currencies. This is somewhat surprising given the FOMC’s hawkish tone on Wednesday and Fed Governor Waller’s comment today that a 50bp hike remains an option. The dollar’s muted reaction suggests to us the bar probably remains higher in the US than elsewhere for additional rate hikes this year to be discounted by investors, which may prove to be a headwind for the dollar in the short term. Nonetheless, we still think the greenback will edge higher against most currencies over the course of this year. Indeed, we have revised up our forecast for the 10-year US Treasury yield, which we expect will rise, in general, by more than 10-year government bond yields elsewhere. This, along with the relatively limited impact from changes in commodity prices on the US economy, continues to suggest to us a favourable backdrop for the dollar.
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