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USD: Dudley favours Fed lift-off in 2015 - MUFG

FXStreet (Delhi) – Lee Hardman, Currency Strategist at MUFG, notes that the US dollar is continuing to strengthen against commodity-related and emerging market currencies while weakening more modestly against the euro and yen as Fed Vice Chair Dudley stated that he also favours beginning to raise interest rates this year alongside Fed Chair Yellen.

Key Quotes

“It is continuation of US dollar’s recent diverging performance as heightened risk aversion is offering safe haven support for the euro and yen in the near-term, which is at least temporarily outweighing cyclical fundamental support for a stronger US dollar.”

“The economy is doing pretty well in his view although growth maybe a little bit weaker in the second half of the year. He believes there is a strong case for lift off if the economy remains on track although provided reassurance that tightening will go quite slowly.”

“Interestingly he stated as well that he is not paying too much attention to market-based measures of inflation compensation and is drawing comfort from the stability of survey-based measures of long-term inflation expectations. His comments add to the view that the Fed will begin to raise rates this year unless there is significant negative external shock to the US economy, which should offer support for the US dollar going forward.”

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