Today's markets analysis on behalf of Paolo Broccardo, CEO at BankPro '
(MENAFN- MENAFNEditorial) The US dollar pulled back on Tuesday as Treasury yields retreated from multi-decade highs and the global bond sell-off lost some momentum. Lower oil prices added to the pressure. Brent eased on expectations of additional Russian diesel supply, moderating the inflation impulse that has supported tighter Federal Reserve pricing. However, the energy backdrop remains fragile. Any setback in the Russia agreement or renewed attacks on Middle Eastern energy infrastructure could quickly push crude higher, revive inflation concerns and restore upward pressure on US yields and the dollar.
Markets expect the Fed to remain on hold at its next meeting but continue to price in one increase by year-end. Recent Fed comments support that view. Governor Christopher Waller has argued that further hikes are likely to be needed while stressing flexibility over their timing, while Cleveland Fed President Beth Hammack has called for a faster move towards restrictive settings. That should provide some support to short-dated yields. At the long end, persistent concerns over the US fiscal outlook could also limit the extent of the decline.
The dollar could remain under mild pressure below its recent high until Wednesday's CPI release provides clearer direction. With only around a 20% probability assigned to an immediate hike, a firmer inflation reading has greater scope to rebuild near-term tightening expectations and lift yields and the currency. A softer print could extend the decline in yields and begin to challenge the December hike currently priced. Thursday's PPI could reinforce either move, while renewed strength in oil would quickly complicate any dovish repricing. Other Fed comments could add volatility if they materially shift monetary policy expectations.
Losses against the euro may nevertheless remain limited by persistent concerns over France. Any deterioration in the sovereign outlook would likely place renewed pressure on the euro, supporting the dollar even if US yields continue to ease.
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Markets expect the Fed to remain on hold at its next meeting but continue to price in one increase by year-end. Recent Fed comments support that view. Governor Christopher Waller has argued that further hikes are likely to be needed while stressing flexibility over their timing, while Cleveland Fed President Beth Hammack has called for a faster move towards restrictive settings. That should provide some support to short-dated yields. At the long end, persistent concerns over the US fiscal outlook could also limit the extent of the decline.
The dollar could remain under mild pressure below its recent high until Wednesday's CPI release provides clearer direction. With only around a 20% probability assigned to an immediate hike, a firmer inflation reading has greater scope to rebuild near-term tightening expectations and lift yields and the currency. A softer print could extend the decline in yields and begin to challenge the December hike currently priced. Thursday's PPI could reinforce either move, while renewed strength in oil would quickly complicate any dovish repricing. Other Fed comments could add volatility if they materially shift monetary policy expectations.
Losses against the euro may nevertheless remain limited by persistent concerns over France. Any deterioration in the sovereign outlook would likely place renewed pressure on the euro, supporting the dollar even if US yields continue to ease.
Appreciate your cooperation in publishing the analysis.
For any inquiry or more information please do not hesitate to contact us.
Regards
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