MUFG analysts expect April FOMC minutes to highlight inflation concerns, reducing rate-cut bets and supporting the dollar.
The US dollar remains supported by rising Treasury yields and a hawkish shift in Federal Reserve communication. The 2-year UST yield surged 11bps following the April FOMC statement and Fed Chair Powell’s press conference, signaling tighter policy expectations.
Three FOMC members dissented against the April statement’s language, favoring a more neutral bias and leaving the door open for potential rate hikes. Recent inflation data has not eased concerns, reinforcing expectations for a hawkish tone in the upcoming minutes.
Market pricing for additional Fed hikes remains limited, but widening rate spreads could fuel further USD strength. Analysts note a strengthening correlation between the dollar and rate differentials, suggesting room for gains if the hawkish narrative persists.