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Dollar firm as U.S. yields surge after Fed pushback – BBH

Win Thin, Global Head of Currency Strategy at BBH, maintains the medium-term bullish outlook for the US dollar amid more hawkish remarks by Fed officials on Tuesday.

Key Quotes:

“The dollar outlook has improved as the Fed pushes back against the perceived pivot.  DXY traded as high as 106.549 today but has since fallen back to trade near 106.20. 
Clean break above 106.518 would set up a test of the July 27 high near 107.246.”

“We maintain our strong dollar call as Fed officials are making it clear that markets misread the Fed’s commitment to lowering inflation. However, the greenback is unlikely to get much more traction in the absence of strong economic data. This week’s U.S. data will be key for the medium-term dollar outlook.”

“It should leave no doubt as to the Fed's intent to keep hiking rates until inflation comes down, no matter the cost to growth and employment.  The full court press by the Fed is likely to continue today.  Bullard, Harker, Daly, Barkin, and Kashkari all speak and likely to maintain the hawkish tone established yesterday.”

“While yields are sharply higher, the needle hasn't moved much in terms of Fed expectations, as the swaps market still sees a terminal Fed Funds rate of 3.5%  Eventually, we think this will adjust higher to something closer to Evans' 3.75-4.0% call.”

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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