Fra Danske Bank:
Kevin Warsh’s vague wording on the inflation outlook forced markets to reconsider their confidence in his price stability commitment, but we believe the macro case for policy tightening is still alive and kicking.
The post-FOMC curve steepening has been driven not just by uncertainty over the policy rate direction, but also the Fed’s reaction function. The former is, of course, partly built into Warsh’s no-guidance approach. But in the June meeting, Warsh was able to convince markets that no matter what the committee ends up deciding in the following policy meetings, it would ultimately deliver on the price stability mandate. The fact that both long-end term premium estimates and inflation expectations have now risen in tandem suggests that said confidence has been eroded.
In simpler terms, taking cues from the market is not enough, if you do not live up to the expectations. For now, the outright level of markets’ inflation expectations is still far from concerning, but if the direction remains for higher rates , the risk of an early policy rate hike increases , rather than the opposite. Nevertheless, the recovery in inflation expectations has unarguably challenged our recent tactical narrative for broad USD strength. Furthermore, the stronger-than-expected EA July HICP and Q2 GDP data alongside the latest decline in oil prices have supported EUR FX. Our short EUR/USD spot recommendation hit its stop-loss of 1.1550 early Monday morning, and we book a loss of 1.42% including carry.
Hurtige nyheder er stadig i beta-fasen, og fejl kan derfor forekomme.
