Rising 2-year Treasury yields and hawkish Fed rhetoric have increased the risk of a 50bp rate hike on 9th December, potentially driving the US Dollar higher and pushing EUR/USD below 1.1000.
A stronger-than-expected US CPI print and Fed Governor Waller's comments about a possible 50bp hike have driven a sharp rise in the 2-year UST yield, and the OIS market now partially prices a 50bp move on 9th December. Higher rate expectations shift in favour of the Dollar. MUFG views this as a risk rather than a core view, favouring a 25bp step.
If stronger payrolls data and a rebound in crude oil reinforce the case for an aggressive Fed hike, rate expectations would shift in favour of the Dollar and MUFG sees a lurch lower in EUR/USD with levels below 1.1000 coming into play. The move is conditional: MUFG still favours a 25bp step at the FOMC.
The article cites a sharp rise in the 2-year UST yield driven by the stronger US CPI and Waller's hawkish comments, with the OIS market partially pricing a 50bp hike on 9th December. Further strong data would support higher front-end yields, though MUFG doubts a 50bp move is needed.
The US Dollar gains momentum as markets reprice the probability of a 50bp Federal Reserve rate hike on 9th December. MUFG analyst Derek Halpenny notes that while a 25bp move remains the core expectation, hawkish comments from Governor Waller and rising 2-year Treasury yields have increased upside risks for the Greenback. A strong upcoming payrolls report combined with rebounding crude oil prices could push EUR/USD below the 1.1000 level.
Stronger US CPI and Waller's comments revived talk of a 50bp Fed hike on 9th December, pushing up the 2-year UST yield and rate-hike expectations in favour of the Dollar.
No. MUFG calls it a risk rather than a core view and suspects the Fed will prefer a 25bp move.
MUFG warns that a shift in rate-hike expectations in favour of the Dollar could push EUR/USD below the 1.1000 level.
A strong payrolls print plus a rebound in crude oil after its recent sharp drop, which could tilt the Fed towards a 50bp hike on 9th December.
The stronger US CPI report and Waller's comments that a strong CPI print may warrant a 50bp hike, which revived speculation of a larger December move.