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US growth leadership is set to continue – Westpac

Fed Chair Powell’s caveat to keep gradually raising rates, “for now” more likely hints at a pause (2019?) than acceleration given Fed caution about yield curve flattening and the proximity of neutral, according to Richard Franulovich, Head of FX Strategy at Westpac.

Key Quotes

“That will be highly problematic for the USD but it is more likely a story for 2019.”

“For now, US growth leadership is set to continue thanks to more enduring growth impulses compared to the rest of the world such as relatively easier financial conditions, tax cuts and rising federal spending. The prospect of some mean reversion in elevated US data surprise index readings shouldn’t upset that story too much.”

“We should not expect trade tensions to defuse anytime soon either; meaningful concessions from China seem unlikely; European leaders have signaled they will respond in kind to any auto tariffs; while Nov mid-terms argue against a more conciliatory US approach (certainly objections from US corporates and congress have done little to turn the tide).”

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