Fed expectations to mid-2018 have barely moved – Westpac
Richard Franulovich, Research Analyst at Westpac, notes that Fed expectations to mid-2018 have barely moved and instead, the OIS curve is steepening via increased Fed hike risks for H2 2018.
“The bulk of the rise in long end yields is inflation expectations too (real yields have not moved). Both shed some light on the USD’s inability to benefit much from firming yield support.”
“But against that, tax cut hopes have received a boost, Trump reportedly open to a 25% corp. tax rate, giving Congress scope to restore many politically thorny deductions set for repeal. Murkowski, a key moderate GOP Senator seems to have changed tune too, coming out in favour of attaching a provision to repeal Obamacare to the tax bill. That said, risk abounds around the tedious process of melding the House and Senate plans into a single bill during the “conference committee” stage. That, along with USD’s aforementioned inability to benefit from higher yields leaves the USD vulnerable near term.”