MUFG Research discusses the USD tactical outlook.

"The Fed is still widely expected to leave rates on hold this month after recent communication from officials, including Fed Chair Kevin Warsh, failed to signal any urgency to tighten policy again. The proximity of the US midterm elections may also discourage a back-to-back rate hike. If the Democrats take control of Congress, it could contribute at the margin to a further pullback in US yields and the USD," MUFG notes.

"The USD’s correction has also coincided with a moderation in investor optimism towards AI-related trades. Strong inflows into riskier US assets have helped to support the USD alongside higher US yields and the positive terms-of-trade shock from elevated energy prices. However, heavily overweight positioning leaves the USD vulnerable to a reversal when sentiment towards AI deteriorates," MUFG adds.