The USD has been in demand of late, mainly on the back of Fed Chairwoman still making a case of tightening monetary policy this year.
In her view slack in the economy diminished to a point where inflation pressures should start to gradually build in the coming years and that the Fed needs to get in front of this. This in turn suggests that the central bank will not wait for price developments to stabilize more considerably before higher rates will be considered.
As such she reaffirmed that it will likely be appropriate to raise the target range of the federal funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter.
Although it appears questionable that the Fed will consider higher rates as soon as in October the latest development makes a case of them tightening monetary policy in December, unless growth conditions were to deteriorate considerably.
As a result to the above outlined conditions we remain of the view that well supported Fed rate expectations will keep the greenback in demand.
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