USD: Fallen in anticipation of a lower Fed rates path, but outlook still solid - AmpGFX

The USD has fallen in anticipation of a lower Fed rates path, but the outlook is not all bad, according to Greg Gibbs, Analyst at Amplifying Global FX Capital Pty Ltd.

Key Quotes

“The USD has fallen further in recent weeks as the Fed indicated it is more concerned about low inflation outcomes.  The shift in focus to QE balance sheet run down also points to a slower and more uncertain path of Fed rate rises over the coming year. The market still sees a 50% chance that the Fed hikes a third time by year end.  However, it barely has one additional hike priced in for each of the next two years.  The rates curve is already quite flat.”

“The USD has fallen sharply this year and may already have factored in a more subdued outlook for US rate rises.  The near term for the USD remains clouded by the approaching debt ceiling problem that is intertwined with budget and spending bills.  The latest Trump machinations may also be increasing political uncertainty.  However, consumer and business confidence remains elevated since the election, the most recent US economic indicators have improved, and the labor market continues to tighten.”

“Political uncertainty has not significantly spilled over to weaker growth.  These do not seem like great levels to consider selling the USD.  We see scope for it to recover in the coming six to 12 months.  However, it faces increased uncertainty in the next few months.”