US Dollar: Supported but capped by softer data – OCBC

OCBC’s Sim Moh Siong and Christopher Wong note that lower US Treasury volatility, if sustained, could help high-beta currencies and EM carry trades, even as the Dollar stays supported. They highlight solid 10-year and 30-year auctions and a recent decline in the MOVE index. However, softer US employment and inflation trends may limit further USD upside.

Volatility, Fed path and USD upside

"Our base case remains that USD will remain well supported. But we are not rushing to upgrade our USD view in favour of an explosive move up."

"Fedspeak from Governor Waller and St. Louis Fed President Musalem continues points to a tightening bias but with flexibility on the timing of further hikes. No surprises there, as market starts to understand the pace of Fed hiking cycle."

"Lower Treasury volatility, if sustained, could offer relief to high-beta currencies and EM carry trades. The USD should remain supported, but softer inflation and labour market trends may limit upside potential."

"If upcoming CPI inflation data confirm that underlying price pressures remain contained, investors may further scale back expectations for additional Fed tightening. That could limit the scope for further USD upside."

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