US dollar still has room to rise, but the path will not be lineal – TDS

The US dollar remains best in class. That said, strategists at TD Securities reckon that the next phase of USD resilience will be less linear than it has been this year. 

More bad news for the Federal Reserve

“With MoM core CPI showing no ebbing in momentum, the implication is pretty clear here: the Fed has to keep going at 75 bps increments and the USD remains best in class.”

“Until we see a few months of moderation in core MoM CPI, it is going to renege on USD resilience. We have stipulated that we will need at least 2-3 months of evidence of slowing momentum. This print pretty much confirms we will not see that this year and may be a Q1 story at the earliest.”

“There is no alternative to the USD, particularly as a G10-led, and in some cases a self-inflicted (like the UK), balance of payments crisis.”

“There has been speculation about whether USD strength will be too much. But until the stock of global FX reserves –  which is a lot – runs down significantly (far from it), there is still runway before we should really be concerned. That said, the next leg up will be a bit more difficult to achieve given concern about market functioning.”