Analysts at Bank of Tokyo Mitsubishi explained that renewed USD strength should still materialise but from weaker level.
Key Quotes:
“Our current dollar forecasts (Foreign Exchange Outlook 1st March) were based on two rate increases this year and two still seems most likely – in June and December. Still, we place a much higher risk of that turning to three than the markets currently do.
But after such a dovish outcome last night, we feel expectations on dollar direction to the downside have hardened and that means a much weaker US dollar than our current forecasts for Q2 and Q3. Our quarterly EUR/USD forecasts from mid-year through to Q4 of 1.0400, 1.0400 and 1.0300 are now all too low.
Still, despite the surprise take on the inflation outlook by the FOMC, we still expect that to change later in the year, which will mean US dollar strength returning in H2, but from lower levels than we previously thought. It is perhaps important to remember at this juncture that the Fed will still be raising rates this year while recent FX moves make it more likely that central banks outside of the US will maintain easing biases for longer.
So we do not take last night as some turn in divergence and was perhaps more about the Fed trying to manage expectations about the extent of the policy divergence ahead. A year-end EUR/USD level of around 1.0500 is still feasible.”
(Market News Provided by FXstreet)