US Dollar: Rising oil prices and Fed outlook boost USD – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes that higher Oil prices are pressuring stocks and bonds while supporting a firmer Dollar. The FOMC minutes showed most participants backing another rate increase by year-end, with futures fully pricing a 25 bps hike to 4.00–4.25%. Easy US financial conditions and strong growth outperformance continue to underpin USD strength versus other currencies.

Oil, Fed minutes back stronger Dollar

"The renewed increase in crude oil prices is weighing on stocks and bonds, while underpinning a firmer USD."

"Persistently high energy prices keep risks to inflation, policy rates, and benchmark bond yields skewed to the upside, while favoring energy exporters’ currencies and USD over energy importer’s currencies. US growth outperformance and strong foreign appetite for US securities give USD an added boost."

"There was no new information from the September 15-16 FOMC meeting minutes. The key takeaway is that “most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end.” Fed funds futures already fully price in a full 25bps hike to 4.00-4.25% on December 9."

"The minutes also suggest US financial conditions give the Fed room to keep hiking. “Many participants commented that, despite the recent rise in longer-term Treasury yields, financial conditions appeared to be supportive of economic growth, with equity prices having risen substantially this year and spreads on corporate bonds having remained narrow.”"

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)