According to Richard Franulovich, head of FX strategy at Westpac, the USD has brushed aside lower yields this year but we may have finally hit a tipping point now that Fed officials are openly saying they could adjust policy to sustain growth.
Key Quotes
“Certainly recent weaker USD price action suggests the once sturdy correlation between yields and the USD has reasserted itself.”
“Odds leaning to the Fed dropping “patience” in favour of a signal underscoring its willingness to act if needed June 19. The dots could noticeably drop too. Beyond that, data and events still need to make the case for a cut and the outlook is very path-dependent.”
“If the Trump-Xi G20 does not produce a resumption in trade talks and planned Mexico tariffs proceed, hitting say 15% by August – a likely pain point for the economy and markets – a Sep Fed cut seems likely. But there is also some possibility of more benign outcomes that take Fed cuts off the table, reigniting USD upside.”
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