US Dollar: Stronger profile as policy supports flows – Societe Generale

Societe Generale’s Kit Juckes argues that recent US policy proposals around diesel exports and higher yields are reinforcing a stronger Dollar outlook. He notes that talking down the Dollar has failed since the Federal Reserve raised rates, and that capital inflows driven by higher US yields should keep supporting the Dollar, especially as Europe faces growth risks in a global energy crisis.

Diesel policy and yields back Dollar

"In FX markets, there is only one major winner from such a policy: the dollar. The US may not benefit economically, but the euro, and probably most other European currencies, would suffer."

"Talking down the dollar stopped working when the Fed raised rates, and now a series of dollar-friendly policies is pushing the currency out of the narrow ranges in which it spent the summer. We will see what today's ISM data reveal and hear what the six current voting FOMC members scheduled to speak today have to say."

"However, if Friday were to deliver a surprisingly weak NFP report, that would simply provide a more attractive entry point for long-dollar positions."

"For now, the US is "solving" the need for greater capital inflows in a world that is increasingly nervous about US policies by offering higher yields. That will keep money flowing into the country and support the dollar until growth begins to suffer."

"However, in the midst of a global energy crisis, it is hard to imagine the US seeing growth slow signifiacntly, before Europe does."

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