The impetus towards pricing in a more abrupt Fed tightening cycle has run its course for now, with 4 ½ to 5 hikes priced in for 2022. The US Dollar Index (DXY) is in a retracement phase for now, but the medium-term bull trend remains intact, economists at Westpac report.
Yield support for DXY to continue to grow in coming months
“There are some doubts about near term USD momentum with expectations stabilising around 4 ½ to 5 Fed hikes in 2022, but beyond that the medium-term USD uptrend is in very good shape.”
“The tail risk of an abrupt Fed policy tightening cycle is unlikely to die down until wage and inflation risks have decisively turned.”
“DXY likely respects support around 94.50, another leg higher toward 99-100 on the cards in coming months as the Fed pulls away from a staunchly cautious ECB.”
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