Dollar remains under pressure as key week begins – BBH
01.08.2022, 13:06

Dollar remains under pressure as key week begins – BBH

Despite the recent downfall, Win Thin, Global Head of Currency Strategy at BBH, sticks to his medium-term bullish outlook for the US dollar and explains that the Fed remains committed to lowering inflation.

Key Quotes:

“DXY is down for the fourth straight day and trading at new lows for this move near 105.43, the lowest since July 5. We maintain our strong dollar call and believe that markets are misreading the Fed’s commitment to lowering inflation.  However, the greenback is unlikely to get much traction in the absence of any strong economic data.  This week’s U.S. data will be key for the medium-term dollar outlook.”

“WIRP suggests a 50 bp hike September 21 is fully priced in, with 30% odds of a larger 75 bp move.  The swaps market is now pricing in 100 bp of tightening over the next 6 months that would see the Fed Funds rate peak near 3.50%, followed by 50 bp of easing over the subsequent 6 months.  We cannot believe that the Fed would make such a quick pivot with inflation still well above target and the labor market at full employment. “

“With the media blackout over, prepare for more Fed comments that tilt decidedly hawkish.  Evans, Mester, and Bullard speak Tuesday.  Mester speaks again Thursday.  Over the weekend, uber-dove Kashkari reiterated that the Fed is focused on lower inflation, noting that “We are committed to bringing inflation down and we’re going to do what we need to do.  We are a long way away from achieving an economy that is back at 2% inflation, and that’s where we need to get to.”  We concur.”

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