Fed Tightening Risks Keep USD Outlook Bullish Amid Resilient US Economy
The US dollar has been receiving renewed support from various factors, according to OCBC's Sim Moh Siong and Christopher Wong. These include higher oil prices, rising US yields, and resilient US labour data. The pair argues that while softer June inflation allows the Federal Reserve to stay patient, continued US economic resilience should eventually refocus tightening concerns.
The dollar has been buoyed by firmer oil prices as optimism over a reopening of the Strait of Hormuz faded. Additionally, global yields moved higher overnight, with USDJPY edging back towards 160 and keeping intervention risks firmly on the radar.
The standout move across asset markets was the sharper rise in US yields relative to Europe, which was likely reinforced by an FT report suggesting Fed Chair Warsh would be prepared to support a rate hike at the September meeting if upcoming inflation data remains elevated.