Global Yields and US Inflation Trends
Rising US price pressures may see $ gain against G10 low-yielders Fed officials were out in force yesterday, with most suggesting that the case for a near-term rate hike is growing. Nonetheless, the string of hawkish comments failed to leave much impression on global markets and we suspect it may remain a “boy who cried wolf” situation until the “wolf” (higher US wage or price inflation) shows up. Today’s core PCE inflation data may provide some tentative signs of rising inflationary pressures, with markets looking for a slight uptick to 1.7%YoY. With oil prices likely to stay anchored around current levels following the OPEC deal, we think the headline US inflation numbers will be in pretty good shape by year-end (as the oil price base effects unwind). Financial conditions are likely to tighten in response, which will keep the USD supported against the low-yielders.