US Dollar to embark on a “bumpy road” – Commerzbank

I don't think that much has changed in the end: June is moving back into focus as the first rate cut date instead of July, and will probably stick there, although the Fed will still remain data-dependent. And in the longer term, the interest rate level will probably be even higher than previously assumed. That speaks more in favor of the Dollar. The market now seems to see it that way also after the economic data surprised on the positive side this week.

Moreover, the Fed can hardly surprise on the dovish side now, the market now is focused on June again, unless the data virtually collapses in the coming weeks and argues for even earlier rate cuts, which in my opinion is an unrealistic scenario. However, if inflation remains stubbornly high beyond the first two months of the year, i.e. if the ‘bumps’ turn into plateaus, a rate cut for 2024 could still fall by the wayside, which would be Dollar-positive.

Unfortunately, however, like the Fed, we will only be smarter in the further course of time. So let's wait for the data and comments from FOMC members in the coming weeks. However, we may also have to prepare ourselves for a ‘bumpy road’ in the Dollar.