The greenback rallied following the January Fed statement and press conference. Economists at CIBC Capital Markets look for USD gains following consolidation as the Fed starts hiking rates, causing the market to price in more hikes post-2023 as hawkish rhetoric ramps up.

USD consolidates, but further gains ahead

“A rate hike for March is now in the price, and the market is now also pricing in a 30% chance that the Fed will hike by 50bps at that meeting. While we expect the Fed to hike rates four times this year, the market is now leaning towards five. Given the aggressive taper, and signals being sent on quantitative tightening, we don’t see the Fed hiking by 50bps increments.”

“With the market already pricing the Fed's first move aggressively, and USD longs a consensus view, we see a period of consolidation in the near-term before the USD finds it’s footing again.”