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USD: There exists a risk it might drop further in the near-term MUFG

The recent pullback of the united states dollar makes analysts at MUFG Bank more cautious over chasing the greenback further to the upside in the near term. They warn that next weeks US CPI report for August poses another downside risk for USD.

Key Quotes:

It’s been a volatile week in market. In the initial 1 / 2 of the week the dollar extended its recent advance hitting fresh year up to now highs against other major currencies. EUR/USD hit a brand new year up to now low of 0.9864 on Tuesday accompanied by cable hitting fresh year up to now low at 1.1406, and USD/CNY and USD/JPY hitting fresh year up to now highs at 6.9799 and 144.99 respectively on Wednesday. After investing in place fresh year up to now highs the USD has since corrected sharply reduced recent days. It’s been the biggest sell-off for the dollar index since July.

The pullback for the USD has made us more cautious over chasing further USD upside in the near-term. We have been not convinced that it’s the beginning of a far more sustained reversal lower for the USD, but there exists a risk it might drop further in the near-term.

One potential downside risk in the week ahead for the USD may be the release of the most recent US CPI for August. The Fed has recently downplayed the weaker US CPI report for July, but another weaker CPI report for August could challenge market expectations for a third consecutive 75bps hike later this month.

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