Green light for the greenback – CIBC
The USD is back in favor as the US economy is poised to outperform – causing the Federal reserve to bring forward its rate hike timetable further, economists at CIBC report.
USD back in favor on Fed policy expectations
“The June FOMC meeting marked a turning point for the USD. Prior to the meeting, positioning and sentiment on the greenback was largely bearish, discussed in last month’s report. Since then, there’s been a notable decline in the number of USD shorts while markets have pared bearish sentiment to a degree.”
“The Fed’s subtle pivot towards removing accommodation earlier sent a clear message to the market that the tone on inflation has changed. In addition, the other message that the market took away from the June Fed announcement was that the FOMC is no longer going to be in the rearguard in the global shift towards tighter policy in the period ahead. That put a dent in popular positions beforehand that sought to capitalize on reflation – including being short USD.”
“Going forward, we now envisage a higher floor for the USD against other currencies. The Fed’s pivot marks a transition away from the old reflation narrative towards a new one whereby real yields underperform relative to nominals. That should continue to push USD shorts to exit given the relatively higher yields in the US to other developed markets.”
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FXStreet Insights Team
FXStreet
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