FXStreet (Barcelona) – According to Credit Agricole, there exists a certain risk that the Fed might adopt a cautious tone because of the stronger dollar, but the inflation outlook will keep the FOMC on track for the rate hike, which implies broad based USD strength will make its comeback soon, as noted by eFXnews.
Key Quotes
“Will the Fed adopt a more cautious tone because of the recent USD-strength? We think there is some risk given that confidence in the manufacturing sector is close to the recent lows while weak global trade continues to weigh on US exports.”
“In addition, it remains to be seen whether the US consumer will spend the windfall from lower oil and import prices (May retail sales due on June 11).”
“Last but not least the IMF has recently called on the Fed to delay any tightening until next year.”
“The above being said, one important difference from March is that inflation expectations as measured by Fed’s preferred gauge – the 5y5y forward breakeven inflation – have rebounded on the back of stabilising commodity prices. In addition, core CPI as well as earnings surprised on the upside recently.”
“All that could suggest that the FOMC should be growing more confident about the inflation prospects in the economy and move closer to a hike. If that is confirmed next week, USD could extend its gains across the board.”
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