Risk sentiment has been improving further in Asia with most stock market indices trading higher at the time of writing. Although yesterday’s FOMC minutes confirmed that many central bank members expect a lift-off later this year, investors’ rate expectations remain capped.
This is due to both the minutes showing that officials discussed the impact of a stronger USD on inflation and the most recent weaker than expected labour data.
However, we stay of the view that the Fed will ultimately decide in favour of tightening monetary policy in December. It must be noted too that inflation expectations as measured by 5y forward breakeven rates have been well supported of late, irrespective of weaker data.
This in turn should put a floor below the USD. As such we remain of the view that the currency should be bought on dips, for instance against the CHF.
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