Much of the adjustment to US rate expectations may be complete for now. Therefore, further USD gains will be more difficult, economists at HSBC say.

DXY gains will probably rely more on a dovish ECB than a hawkish Fed

The challenge for the USD from here is that a large portion of the market’s rate reappraisal is likely already complete. The market is currently priced for the first Fed cut in June, in line with our economists’ expectations. The Fed’s next policy meeting is on 19-20 March when a status quo on policy rate is widely expected. 

US Dollar Index (DXY) gains will probably rely more on a dovish European Central Bank (ECB) than a hawkish Fed; while Japan’s intervention threat will likely cap USD gains vs. the JPY. As such, DXY is likely to track sideways over the next few weeks.