MUFG--US dollar bounce caps Asian FX gains
应用介绍
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Market Highlights
Fed officials who spoke last Friday have been encouraged by the progress made in
inflation. They think the economy is getting closer to a point where interest rates can
be cut, but it is still not there yet, while there is a need to balance fighting inflation and
preventing a sharp deterioration in labour market conditions. Fed Daly said the Fed
has yet to achieve price stability and needs to be very confident that inflation can return
to a sustainable path of 2% before a policy pivot.
Complicating the outlook for the Fed’s monetary policy is the rising odds of Trump
returning to the White House. Trump’s proposed tariffs, along with a potential extension
of his 2017 tax cuts and a deeper reduction of corporate tax, could pose an inflationary
shock. This could in turn limit the room for Fed rate cuts and the extent of declines in
long-term yields. This could also in turn keep the US dollar firm, notwithstanding market
expectations for the Fed to cut interest rates. Meanwhile, President Joe Biden has
decided to bow out of the presidential race over the weekend. He is now backing VP
Kamala Harris to become the Democratic Party nominee for the presidential election.
The DXY US dollar index gained about 0.8% over the past 2 trading sessions on
Thursday and Friday. This helped the US dollar to post its first weekly gain during the
month. We think the dollar may find it hard to outperform this year, with market
expectations for the Fed to finally cut interest rates. With the BOJ set to cut JGB
purchases and gradually normalize monetary policy amid rising inflation and wage
expectations, monetary divergence between Fed and BOJ suggests scope for a
stronger yen.
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