The US dollar continued to edge higher against most major currencies, with the DXY index (and 10-year US Treasury yields) reaching a new high for the year. The renewed rise in Treasury yields today reversed the dollar’s weakness following a weaker-than-expected US core inflation print, which pointed to price pressures starting to drop off. At the same time, although a global monetary tightening cycle is now well underway and money markets discount terminal policy rates above neutral in several G10 economies, investors are starting to question how far central banks will need to, or be able to, tighten policy. The scope to push interest rate expectations higher is arguably limited in the likes of New Zealand, Australia, and Canada. Our view remains that the US economy is relatively well-placed to weather aggressive monetary tightening, underpinning further dollar strength.
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