USD carry momentum is fading – Danske Bank

Aila Mihr, analyst at Danske Bank, points out that the dovish Fed last night, which notably removed its reference to ‘further gradual rate increases’, has put USD under renewed pressure and EUR/USD jumped a big figure above the 1.15 mark.

Key Quotes

“In our view, yesterday’s message cements the sense of a ‘Fed on hold’, which is key to the FX market as this means that USD carry momentum is fading, notwithstanding a few more hikes down the road.”

“USD is vulnerable to such a shift as positioning is likely to remain stretched on USD longs. However, in order to see a sustained move higher from the recent range around 1.15, we believe the eurozone cyclical outlook has to improve and this is not likely until late H1.”