US Dollar: Fed reaction focus after Waller – MUFG

MUFG’s Michael Wan notes the Dollar strengthened as US Treasury yields rose and equities sold off, helped by renewed US–Iran tensions and higher Oil prices. The report highlights Fed Governor Christopher Waller’s hawkish comments on potential near-term rate hikes if core inflation runs hot, and stresses that upcoming US CPI, particularly core inflation, will be crucial for US rate expectations.

Dollar firmer with yields higher

"The Dollar strengthened, equity markets sold off, while US Treasury yields rose with some bear-flattening in the US rates curve."

"More importantly, Fed Governor Christopher Waller delivered a hawkish message yesterday, saying that the Fed may need to raise rates in the near-term if we get another hot reading on core inflation."

"Governor Waller’s remarks in providing more details on the Fed’s reaction function are also very interesting in the broader context of Fed Chair Kevin Warsh’s push to the Fed to rely less on forward guidance."

"Tonight’s US CPI numbers will as such take on greater importance than usual and especially the core inflation numbers. Our US team is calling for a 0.24% mom rise in US core CPI, and from a market perspective any upside surprise on this front may lead to the market further cementing US rate hike expectations (and vice versa of course)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)