The trajectory of the US dollar is increasingly dependent on the Federal Reserve’s policy decisions, according to a new analysis from MUFG. The currency’s recent strength may stall or reverse if the central bank signals a more dovish stance on interest rates. MUFG analysts point out that the dollar’s valuation is currently at a critical juncture. The market has largely priced in a pause in rate hikes, but the currency’s next significant move hinges on whether the Fed delivers a rate cut sooner than expected or maintains a hawkish bias. Any dovish pivot could weaken the dollar, while persistent inflation data that forces the Fed to hold rates higher for longer would likely support it.