The US Dollar Index (DXY) weakened in June by 1.4% and whether or to what extent the Dollar weakens further will become clearer in July, economists at MUFG Bank report.

Scope for the USD to strengthen over the second half of the year remains limited

The PCE inflation data at the end of June revealed further deceleration and if the jobs market and CPI data also show weakness, there is scope for the Fed to extend its pause. In that scenario, an end to the Fed’s tightening cycle would be likely which could help propel the Dollar weaker. 

Even if the FOMC does hike in July, with the market close to fully priced and with most other G10 central banks priced to hike further, the scope for the Dollar to strengthen over the second half of the year remains limited.