A stumbling start for the US Dollar Index (DXY) in early 2022, but it should find its feet into next week’s FOMC as expectations build for a March hike signal, in the view of economists at Westpac. DXY could see a quick sprint toward last year’s 97.94 highs.

Bullish DXY view for the week, month and quarter ahead

“DXY could see a quick sprint toward last year’s 97.94 highs into next week’s Fed, as expectations build that their statement will show a clear signal of intent to move ahead with March lift off.”

“Market pricing for terminal Fed Funds beyond 2023 has been inching higher too, but at 1.75% still falls well shy of the Fed’s 2.5% long-term neutral rate too. And, as the focus shifts to the Fed’s balance sheet and prospects for quantitative tightening, another leg of fresh yield support can form further out the yield curve.” 

“We stick with a bullish DXY view for the week, month and quarter ahead.”