USD Extends Gains Amid Further Hawkish Signals from the Fed
US Dollar (USD) gains continue after the latest Federal Reserve (Fed) hike, which was seen as hawkish. According to Brown Brothers Harriman's Elias Haddad, this move is extending the USD's upside potential.
Haddad notes that even though reopening prospects for the Strait of Hormuz have tempered the USD rally and weighed on oil prices, the US growth advantage remains a key factor in skewing risks higher for the USD against major currencies such as the Euro, Pound, and Japanese Yen (JPY).
Multiple Fed officials have signaled further tightening, with St. Louis Fed President Alberto Musalem indicating that more rate hikes may be needed to curb inflation. Chicago Fed President Austan Goolsbee warned of 'more aggressive and more front-loaded' rate hikes if demand is overheating.
Tightening by other major central banks limits policy divergence with the Fed, which suggests the USD will struggle to make new cyclical highs. However, Haddad argues that the US growth advantage relative to other major economies skews USD risks to the upside.