MUFG’s Lee Hardman notes the US Dollar is set for a second straight week of gains but has lost upward momentum as softer US GDP and PCE data, plus dovish comments from New York Fed President Williams, reverse recent hawkish repricing. MUFG expects the Fed to keep rates on hold and the Dollar to weaken later in 2026.

Fed repricing weighs on Dollar

"The US dollar is on track to strengthen for the second consecutive week although it has lost some upward momentum heading into next week. The US dollar’s upward momentum was dampened yesterday by latest US economic data releases and comments from New York Fed President Williams that have triggered a reversal of the recent hawkish repricing of Fed rate hike expectations."

"US yields and US dollar fell after the release of the latest US GDP data for Q1 which revealed that consumer spending slowed more than previously reported by only 0.5% down from 1.4%. The downward revision (-1.3ppts) was mainly driven by services consumption."

"Evidence of slowing inflation in the coming months will be required to prevent the Fed from backing up tough talk with rate hikes."

"He expects inflation to ease back to 3.5% by year-end and then continue to slow on a glide path toward 2.0% reaching the target in 2028."

"Overall, the comments are supportive of our view that the Fed will look through the energy price shock by leaving rates on hold this year, although he has consistently been at the more dovish end of the spectrum. If the Fed does not follow through with rate hikes, we expect the US dollar to re-weaken later this year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)