Federal Reserve’s rhetoric shift provides some balance to FX markets. More comments on calibrating the pace of further policy tightening could weigh on the greenback, economists at MUFG Bank report.

Pivot speculation re-emerging to cap USD 

“A near 2% swing in the US dollar from the intra-day high to the close on Friday was certainly significant and could be an indication of the US dollar having reached stretched levels, certainly over the near-term.”

“If we get more of the same this week from Fed officials in terms of focusing on the topic of calibration, the markets may sense an orchestrated effort to bring some order to the markets. However, only Fed Governor Waller is on the schedule to speak this week so we may not get much guidance now before the FOMC meeting on 1st/2nd November.”

“If there are any last-minute comments highlighting the calibration topic those comments could propel the US dollar further weaker over the short-term. At the very least, it would provide better two-way balance to US dollar flows in the FX markets.”