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US: Monetary policy divergence likely to thrust the greenback - BBH

FXStreet (Delhi) – Research Team at BBH, suggest that the main thrust to bullish US dollar outlook is the divergence in monetary policy trajectories and they do not think the divergence has peaked and anticipate it to persist through next year and into 2017.

Key Quotes

“Since the Federal Reserve finished QE3, the divergence has been driven by easing of policy by the European Central Bank, the Bank of Japan, and a broad number of high and medium income countries, including China.”

“We expect the Fed to participate in the divergence by raising rates. It has been particularly challenging this year to time the Fed's lift-off, but the vast majority of Fed officials still anticipate it taking place before year-end.”

“Of course, some doubt this, and a few Fed officials prefer to wait until next year, but fund managers, corporate treasurers, pension managers, and debt managers recognize the risks of a move this year.”

“On balance, we expect the developments in the week ahead to strengthen the theme. Barring a surprise, which is always possible, the key US economic data is expected to show that labor market slack continues to be absorbed, the core PCE deflator may tick up, and the consumer is still healthy in terms of real consumption and new auto sales.”

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