FX Daily: Dollar lifted as search for terminal Fed rate continues | Article
USD: Fed’s tough love on inflation could send USD/JPY to 125
Hawkish comments from Fed Chair Jerome Powell yesterday have injected another wave of re-pricing into US rates markets. US 10 year yields are up 18bp to 2.33%, but the short-end has sold off more and the US 2-10 year curve has now narrowed down to 15bp. Expect much speculation over whether a flat or inverted US yield curve means recession – and certainly, this energy shock has increased the chances of a late 2023/24 US recession. Google searches on Paul Volcker are no doubt picking up as we remind ourselves of the Fed chair in the early 1980s who stamped out the inflationary effects of another oil shock, took rates to 15%, and sent the US economy into recession. Incidentally, the dollar went through the roof during this period.
As we discussed in our Fed review last week, USD/JPY is at the forefront of this adjustment and has pushed through 120…
