Dollar under pressure following Fed’s inflation targeting – UOB

UOB Group’s Head of Markets Strategy Heng Koon How, CAIA, Senior FX Strategist Peter Chia, Rates Strategist Victor Yong and Markets Strategist Quek Ser Leang give their opinion on the latest Fed’s policy announcement.

Key Quotes

“The Federal Reserve has announced a shift to an Average Inflation Targeting (AIT) mandate as well as giving greater consideration to its employment mandate, thereby raising the bar for pre-emptive monetary policy tightening even higher. Overall, this reinforces our expectation that short term US money market rates will stay glued at the zero bound, with flexibility for longer term US Treasuries yield to grind higher.”

“We keep to our overall thesis of gradual weakness in the US Dollar. While short positioning is stacking up and over the short term the US Dollar does appear oversold, all the key negative driving forces for the US Dollar remain intact. These factors are extended FED QE, elevated US money supply, lower US interest rate differentials, on-going diversification away from the USD and a persistent risk-on environment.”

“Much has been discussed about the post Jackson Hole rebound in 10-year US Treasuries yield. Our technical analysis suggests that a “short-term bottom could be in place and the recovery in 10-year US Treasuries yield has room to extend to 0.855%.”