USD resumes upside journey – Societe Generale

Research Team at Societe Generale notes that the dollar is back on the front foot after taking a bit of bashing last week as long positions in bonds and short positions in bonds came under pressure.

Key Quotes

“The US Labor Report was dull in all respects bar one – the acceleration in average hourly wage growth to 2.9%. The clear impression is that the labour market is tightening, wage growth is slowly responding and inflationary pressures are building. As for the rest of the report, annual employment growth has slowed to 1.5%, so that while the average monthly employment gain of 180k last year is respectable, it has been trending down since the second half of 2014). Stronger US GDP growth is going to need some late-cycle productivity gains to support it, and easier fiscal policy wouldn’t change that (or at least not quickly). In the short run (6 months or so) a shift in the fiscal/monetary policy mix that gives the US tax cuts and tighter money is bad for bonds and good for the dollar, but if yields struggle don’t keep ahead of inflation expectations, the bond market sell-off will last longer than the dollar rally.”