US Dollar: Fed hike risk and yields back in focus – MUFG
According to MUFG’s Lee Hardman, rising energy prices are pushing market expectations for further Federal Reserve tightening, with 17bps priced for the 16th September FOMC and the 2-year US Treasury yield at a year-to-date high.
MUFG's Lee Hardman highlights the rising energy prices that are driving market expectations for further Federal Reserve tightening, with a 17 basis points (bps) increase priced for the September 16th FOMC meeting. The 2-year US Treasury yield has reached a year-to-date high of 4.41%, supporting the US dollar. Fed Governor Michael Barr reiterated the message from Jackson Hole, stating that if inflation does not moderate sufficiently, decisive action to raise rates should be taken.
A September rate hike would likely benefit the US dollar, but a higher US policy risk premium and buyback-related debasement fears may offset the positive impact. The Fed's plans for bigger Treasury buybacks to combat long-term US yields have negatively affected the US dollar. Energy prices are encouraging other major central banks to raise rates further, contributing to the dollar's strength.
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