Economists at Morgan Stanley Research offer their outlook on the US dollar heading into Wednesday’s FOMC July policy announcement.

Key quotes

"Our colleagues in economics research expect the FOMC to hike rates by 7513p - in line with the 78bp implied by swap pricing. However, with the equivalent of fewer than six 25bp hikes priced in over the coming year, we think the risk is that the market moves to price more Fed tightening over the coming quarters.”

"The Federal Reserve may frame its July hike in relatively hawkish terms, softening the prices of risk assets and boosting USD broadly. Conversely, we think the global outlook supports maintaining long USD positions. Sell-side forecasts for 2022 US growth have fallen substantially - to levels around our own expectations. However, growth expectations in the rest of the world may have further to decline.”