The U.S. dollar is overvalued as the Federal Reserve’s tightening cycle is over and there’s a clearer economic slowdown on the horizon, but a major deprecation isn’t lingering, MUFG says. “We must though also caution that sharp U.S. dollar depreciation is also very unlikely given the global growth backdrop is unfavorable for non-dollar FX appreciation,” it says in a note. The dollar has weakened meaningfully after the October inflation data and may recover some ground but the scope for notable gains is far less than before, it says. The DXY dollar index is trading 0.2% lower at 103.660. ([email protected])

EUR/USD Faces Upside and Downside Risks Until Year-End

0722 GMT – There are upside and downside risks for EUR/USD in the month ahead, MUFG says in a note. “The pair has a strong seasonal bias to rise at the end of the calendar year that could trigger an upside breakout from this year’s trading range between 1.0500 and 1.1000,” the bank’s analysts say in a note. The main downside risk, meanwhile, is that U.S. dollar weakness is overshooting levels implied by the recent change in short-term yield spreads, it says. However, a stronger signal from the Federal Reserve at the December meeting that it has reached the end of the rate-hike cycle could also trigger another leg lower for the dollar, it says. EUR/USD is 0.2% higher at 1.0907. ([email protected])