The US Dollar Index (DXY) has been trading with a more confident tone since the Federal Reserve’s hawkish pivot in mid-June. DXY could approach 93.5 range highs in the third quarter, according to Westpac economists.
“The perplexing drop in US rates complicates the more positive USD story, but it’s mostly a curve flattening story and a recalibration of inflation expectations in the aftermath of the Fed’s hawkish move.”
“The Fed’s turn contrasts sharply with the ECB’s strategy review, which is expected to result in the Bank adopting a more symmetrical approach to inflation and a less proactive policy process.”
“Payroll prints in the range of 500-850K in the next months are likely to fulfill the Fed’s’substantial progress’ threshold, paving the way for a taper signal at the August 28 Jackson Hole Fed symposium.”
“As taper talk heats up in Q3, DXY could well be testing new 2021 highs beyond 93.45, however a firm signal from Chair Powell that tapering negotiations are going forward would likely be required to open the door to a more persistent DXY increase.”/n
