Room for further USD upside in the near-term – MUFG

The US dollar has continued to trade at stronger levels with the US dollar index holding above the 97.000-level for the first time since the middle of 2020. Economists at MUFG expect the greenback to see further gains ahead.

Long US dollar positions are not yet a crowded trade

“Market expectations for the terminal Fed funds rate have remained stable with rates seen peaking at just below 2.00% which would be lower than the peak from the previous tightening cycle of 2.50% despite more elevated upside inflation risks. It still leaves room for US yields to continue to head higher in the near-term and supports for further US dollar strength at the start of this year.”

“The latest IMM positioning report revealed that market participants have been caught out by the latest leg higher for the US dollar. The report highlights that long US dollar positions are not yet a crowded trade and provides further reason why upward momentum can extend further.”