US Dollar: Rising oil prices and Fed outlook boost USD – BBH

Brown Brothers Harriman's Elias Haddad points out that rising oil prices are impacting stocks and bonds, but they're encouraging the US Dollar to strengthen. The Federal Open Market Committee (FOMC) minutes revealed that most members are in agreement for another rate hike by the end of the year, with futures indicating a 25 basis points increase to 4.00–4.25%.

The Federal Reserve's easy financial conditions and strong growth outpacing other economies continue to bolster the strength of the USD against other currencies. The recent surge in crude oil prices is hampering stocks and bonds, while reinforcing a stronger USD. Continued high energy costs maintain risks to inflation, interest rates, and bond yields, which benefit energy exporters' currencies and the USD over those of energy-importing nations.

There was no fresh information from the September 15-16 FOMC meeting minutes. However, the minutes did indicate that "most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end." Fed funds futures have already priced in a full 25 basis points hike to 4.00-4.25% by December 9.

The minutes also imply that US financial conditions provide the Fed with the opportunity to continue raising rates. Many participants mentioned that, despite the recent surge in longer-term Treasury yields, financial conditions seemed favorable for economic growth. Equity prices have risen significantly this year, and corporate bond spreads have stayed narrow.