MUFG sees limited further upside for USD after a 1.5% rally post-Fed, citing oil price declines and peaking inflation.
The US dollar index (DXY) climbed to its highest level since May 2025, rising 1.5% in three days after the Federal Reserve’s record hawkish shift in its dot plot. The move reflects heightened expectations for tighter monetary policy, though gains may be constrained by falling oil prices and easing inflation risks.
The Fed’s dot plot showed its most significant hawkish adjustment since 2012, coinciding with a sharp decline in crude prices. The IEA projects an oversupplied oil market through 2027, further pressuring prices. Traffic through the Strait of Hormuz has also increased, adding to supply concerns.
MUFG expects EUR/USD to recover later in 2026, suggesting the dollar’s rally may lose steam as inflation pressures ease and the Fed’s rate hike outlook remains uncertain.