The Fed hiked rates by 25 bps and signalled the end of the cycle was closer but left the door open for further hikes if data required. Economists at HSBC see further USD weakness.

Fed hikes rates by 25 bps, signals closer to the end

“The Fed delivered a widely expected 25 bps hike in May. More importantly, the Fed signalled the end of the tightening cycle was closer.”

“Most of the key US data points have been decelerating in recent months, albeit gradually. If these trends persist, the USD is likely to see further gradual weakness, as the peak in Fed rates for this cycle would become increasingly clear. Any sign that these activity data are rebounding or that price pressures are becoming more persistent could create room for some further tightening to be priced in, potentially providing some respite for the USD.”

“Recent lending data showed a stalling in commercial bank loan growth. Should this trend continue, or even accelerate, then it would increase the downside risks to the US economy and help to confirm a peak in Fed rates, weighing on the USD. Other economies face similar risks, but likely over a more extended horizon.”