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Fed: Dovish pivot – Westpac

Richard Franulovich, head of FX strategy at Westpac, points out that the Fed hike pricing peaks Sep 2019 at a bare +4bp, giving way to 16bp in rate cuts by mid-2020.

Key Quotes

“The Fed certainly has the luxury to wait; inflation is docile (6m ann core CPE 1.5%) and the supply side of the labour market is improving sharply (prime aged labour participation has jumped +0.8ppts in the last 4mths to a decade high 82.6%). But the case for USD weakness is not clear cut.”

“Other central banks have now adopted a more cautious stance too, notable examples include the RBA and the ECB. Reflecting that, USD yield support has not faded much lately; the 2yr DXY weighted swap differential is +244bp, exactly where it was a month ago.”

“Trade frictions continue to percolate. Some agreement/de-escalation that placates President Trump seems likely, though remaining thorny issues mean any announcement may well take the form of a “framework agreement”, laying out a specific timeline and benchmark for solving some of the more ambitious US demands. Overall USD atmospherics are more neutral here; a trade deal of sorts is priced in and other central banks are catching up to the Fed’s dovish pivot.”

Author

Sandeep Kanihama

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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