Greg Gibbs, Analyst at Amplifying Global FX Capital, points out that the Fed has been raising rates, and this has supported the USD, but the USD has struggled because the market suspects that at the first sign the economy is losing speed, the Fed will change course.
Key Quotes
“What is more, if that happens at the same time that inflation is rising, and demand for US government bonds weakens on fears its debt trajectory is off the rails, then the Fed will be in the same awkward position some emerging markets find themselves; deciding whether to hike rates to save their currency and halt inflation, or allow a deeper domestic economic collapse.”
“As we head into the Fed meeting this week, deep down, FOMC members may be feeling the pressure building. This is likely to make them fear over-tightening policy. They are likely to take more risks with inflation in the near term to ensure the music keeps playing.”
“The inner voices of FOMC members may say that the USA and the global financial system is not well prepared for sustained strength in the USD or substantially higher US yields. As such, this week may be another ‘dovish’ hike by the Fed.”
“It will be far from a convincing act that they can douse the flames burning just outside their doors. What they need to do is start warning Congress that it needs to get its fiscal house in order.”
Share
