Lee Hardman, Currency Analyst at MUFG, suggests that the US dollar continues to remain on the defensive in the near-term undermined the Fed’s dovish policy shift. Key Quotes “Fed Vice Chair Dudley spoke late last week reiterating that the Fed should be cautious and gradual when raising rates. He is concerned over significant uncertainty about the outlook for growth overseas, low inflation expectations and the Fed’s limited room to lower rates further if required. He was less concerned by recent weakness in the US economy stating that he has made no fundamental change in his outlook for the US economy in recent months although he judges that risks for both growth and inflation are titled slightly to the downside. The latest economic data releases are signalling that the US economy has made another weak start to the year for the third consecutive year. The Atlanta Fed’s model is estimating that economic growth will be close to flat in Q1. In the previous years’ economic growth then rebounded robustly in the following quarters. The leading ISM surveys are signalling that economic growth is likely to rebound in Q2. A more subdued economic rebound would increase downside risks for the US dollar and reinforce market scepticism over whether the Fed will raise rates again this year. We are currently assuming that economic growth will rebound solidly alongside building evidence of higher wages and inflation which should allow the US dollar to regain a stronger footing after the weak start to the year.” For more information, read our latest forex news.