San Francisco Fed President Daly says higher rates 'are likely to be needed' in inflation fight
San Francisco Fed President Mary Daly underscored the expectation for continued interest rate hikes in the fight against persistent inflation, indicating that further tightening may be necessary. This reinforces the Fed's commitment to stabilizing prices, amidst a resilient labor market reflected in the latest jobs report. The emphasis on policy adjustment is crucial given the current economic landscape, and investors should brace for potential shifts in monetary policy outlook, which will impact USD dynamics moving forward.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). This positioning mirrors concerns about inflationary pressures and the likelihood of further interest rate hikes by the Fed.
How firms align
JPMorgan provides an aligned view with a target of 1.10, consistent with expectations of USD strength supported by ongoing Fed policy tightening. In contrast, BofA's stance at 1.04 signifies caution, highlighting potential limitations to USD appreciation amid global economic uncertainties.
What the data shows
Recent data indicates a revision in inflation outlook, suggesting that sustained Fed actions may lead to a stronger dollar. Further insights can be explored in our research at /research/inflation-immediate-impacts.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Daly's comments suggest more rate hikes are on the table, impacting USD sentiment.
- 02Traders should look for volatility in USD crosses as Fed signals evolve.
- 03Risk of unexpected dovish sentiment could weaken USD; watch for upcoming FOMC minutes.
Market implications
In the coming weeks, market participants should closely monitor the 1.075 level for EUR/USD, as a sustained move below could signal further USD strength attributable to rate expectations. Pay attention to upcoming U.S. economic releases for additional insights into Fed policy direction.
Risks to this view
Should there be a significant shift in economic data signaling a slowdown in job growth or inflation, it could lead to a reassessment of rate hike expectations, invalidating the current USD bullish outlook.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
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