USD rebound is unfolding given the richness of US rates curve. Economists at MUFG Bank analyze Greenack’s outlook.
While inflation is falling quite quickly now for the FOMC to cut we will need to see some clearer evidence of a deteriorating labour market that would prompt increased fears of recession. That of course may well come in either the February or March payrolls reports but if not in February we may well see a full retracement of the EUR/USD rally in November/December, taking spot back down to around the 1.06/1.07 area.
The Dollar sell-off into year-end looked overdone and hence there remains scope for further USD strength, especially on days like Tuesday when we see bigger jumps in yields.