FX Pulse

The USD rally resumed after a 2-day hiatus, with the dollar index (DXY) printing fresh 13-year highs (101.91) overnight, supported by higher UST yields (2yr closed at new cycle highs of 1.1228%) and better U.S economic data (durable goods, Markit manufacturing PMI and Michigan sentiment).

    The Nov FOMC minutes held no surprises and firmed the stage for a Dec rate hike, echoing Yellen’s recent remarks that it is appropriate to hike “relatively soon”, with some FOMC participants arguing for a move in Dec to preserve the Fed Reserve’s credibility. Most of the FOMC participants viewed near-term risks to the economic outlook as “roughly balanced” although some were worried that if the Fed Reserve let the unemployment rate fall too low, the Fed may end up needing to hike rates more steeply, and risk ending the US economic expansion. In terms of US Fed Reserve outlook, the Dec FOMC rate hike looks like a done-deal and into 2017, we now expect a faster trajectory (3 hikes in 2017 instead of 2) and a higher terminal rate (3.5% by end-2019 instead of 3%).