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22 Dec 2015
US Dollar: Performance likely to prove more sensitive to inflation reports – MUFG
FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that the foreign exchange market has remained relatively stable in the Asian trading session.
Key Quotes
“The market is likely to be driven increasingly by positioning, year-end related flows and momentum rather than relative economic fundamentals over the less liquid holiday period. The US dollar could weaken both modestly and temporarily during this period as the market remains heavily long US dollars as evident in the latest IMM positioning report.”
“However, the release tomorrow of the PCE deflator report has the potential to impact on US dollar performance in the near-term. The Fed’s decision to more closely link the pace of monetary tightening to ”actual” evidence of progress towards their inflation goal is likely to make the US dollar more sensitive to inflation reports in the year ahead. If inflation were to remain frustratingly subdued, it is likely to prompt the Fed to slow the pace of tightening and dampen the scope for further US dollar strength.”
Key Quotes
“The market is likely to be driven increasingly by positioning, year-end related flows and momentum rather than relative economic fundamentals over the less liquid holiday period. The US dollar could weaken both modestly and temporarily during this period as the market remains heavily long US dollars as evident in the latest IMM positioning report.”
“However, the release tomorrow of the PCE deflator report has the potential to impact on US dollar performance in the near-term. The Fed’s decision to more closely link the pace of monetary tightening to ”actual” evidence of progress towards their inflation goal is likely to make the US dollar more sensitive to inflation reports in the year ahead. If inflation were to remain frustratingly subdued, it is likely to prompt the Fed to slow the pace of tightening and dampen the scope for further US dollar strength.”