The US Dollar Index DXY set new yearly highs, following the sharp rise in the Consumer Price Index (CPI) in January. MUFG Bank economists analyze the prospects for the Dollar.
Upside risks for the dollar for now
The CPI data has done real damage to the prospects for a rate cut in May. The overnight index swap (OIS) market now prices just 10 basis points of cuts for May. At the end of January, the market was expecting 33 basis points. In June, the cut is 25 basis points. With two more CPI reports before May 1, we would be surprised if the implied probability continues to decline.
Thus, OIS prices have adjusted to what we could call reasonable prices, but the 2-year spreads of government bond yields and swap rates have moved notably in favor of the dollar, which It implies that the Dollar continues to run upward risks for the moment.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
