Research from Morgan Stanley
The Fed has little to gain by hiking rates early. Hence, we regard the recent rise in real US yields that has supported the 4% USD rally seen since May as unsustainable. Our long-held framework suggesting a combination of high global debt, capacity overhangs and resulting low returns on investment should keep deflationary pressures intact. The impact that this environment will have on financial markets via a flattened yield curve and subdued inflation expectations should further support our weaker USD view, even though there have been recent upside surprises in US economic data.
