USD: Focus now shifts to the Fed – MUFG

Sandeep Kanihama FXStreet Contributor

The 2-year US-EZ swap spread has fallen further and is now over 150bps which will ensure continued policy divergence influences for EUR/USD explains Derek Halpenny, European Head of GMR at MUFG.

Key Quotes

“In that regard the ECB has done its work and now the focus will quickly shift to the final key macro event of the year – the FOMC decision next Wednesday.”

“However, we expect Fed Chair Yellen to be relatively cautious in what forward guidance she provides to the markets. The press conference will be absent of specifics given the policy uncertainty in relation to the possible reflation policies to be implemented once Trump takes office in January. Nonetheless, it will be very difficult for Yellen to avoid stating the obvious – and that is that any notable fiscal spending program or large tax cuts would undoubtedly have monetary policy implications – so while we do expect Yellen to be as cautious as possible, at the margin the dollar should benefit from a message from Yellen that there are much greater upside risks to US yields in 2017 than downside.”

Author

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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