Despite the recent drop, Win Thin, Global Head of Forex Strategy at BBHmaintains its medium-term bullish outlook for the US dollar and explains that the Fed remains committed to reducing inflation.
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“DXY is down for the fourth day in a row and is trading at new lows for this move, near 105.43, the lowest since July 5. We stand by our call for dollar strength and believe markets are misreading the commitment of the Fed with inflation abating. However, the USD is unlikely to gain much traction in the absence of strong economic data. US data this week will be key to the dollar’s medium-term outlook.”
“The WIRP suggests that a 50 basis point hike on September 21 is fully priced in, with a 30% chance of a move greater than 75 basis points. The swap market is now pricing in a 100 basis point tightening over the next 6 months, which would see the Federal Reserve funds rate hit a high of 3.50%, followed by a 50 basis point easing over the next 6 months, we can’t believe the Fed would do such a quick turn around with inflation still well above target and the labor market at full employment.”
“With the media blackout over, brace yourself for more comments from the Fed leaning decidedly into the aggressive mode. Evans, Mester and Bullard will speak on Tuesday. Mester speaks again on Thursday. Over the weekend, Kashkari reiterated that the Fed is focused on reducing inflation, noting that “we are committed to reducing inflation and we are going to do what we have to do. We are a long way from achieving an economy that returns to 2% inflation, and that is where we need to go. We agree”.
Source: Fx Street
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