As investors lose faith over additional Fed tightening prospects, the onus falls on US inflation numbers to vindicate or refute bearish USD sentiment
We may require a mighty turnaround in US data over the coming months to convince the FOMC to raise rates in December; this is becoming increasingly unlikely and judging by more muted Fed comments, it seems that US policymakers are also losing faith. Add to this ongoing US political uncertainty – where the temporary debt ceiling extension has merely kicked the can down the road into early 2018 – and we fear that markets could still shift to the idea that any “pause” in the Fed’s tightening cycle will be fairly lengthy (if not permanent). Another set of disappointing US data releases, while not our base case, would deliver final nail in the coffin for a Dec Fed rate hike.
While a benign global interest rate environment is being offset by a nervous geopolitical backdrop, the former seems to be winning out for high-yielding dollar bloc currencies
General elections will keep NOK market interested today, while we expect the SNB meeting this week to reinforce the theme of monetary policy divergence in EUR/CHF