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Higher US yields and risk factors support the US dollar, MUFG says
MUFG points to OIS-implied odds of a Fed hike around 35% next week, with the dollar index’s prior high at 101.80 now a target.
MUFG strategist Derek Halpenny said higher US and global bond yields, elevated geopolitical risks, and higher energy prices are supporting the US dollar, with investors increasingly focused on the possibility of a Federal Reserve rate hike.
Halpenny added that expectations of further USD buying are also being reinforced by the global rates backdrop and the Bank of Japan’s gradual policy normalization, which he said could keep gains going in USD/JPY.
He noted that the US dollar index, after printing a prior high at 101.80, is now in reach, with a break above that level viewed as another bullish signal.
MUFG also cited OIS pricing showing an estimated 35% probability of a Fed rate hike next week, alongside Japan yields grinding higher even as core-core nationwide CPI rose 1.7% year over year in June and an adjusted measure stood at 2.7% in May, per the newsletter.
Latest closeUSD/JPY 163.84 ▲0.4%|Dollar index 101.44 ▲0.3%