USD struggling to see meaningful upside – Westpac

In view of Richard Franulovich, Research Analyst at Westpac, USD index has found a base at 98.5 and can see 100/101 near term but struggling to see meaningful upside.

Key Quotes

“Rising probabilities for June and Sep Fed hike are an obvious USD positive but yield spreads are not moving much in the USD’s favour: June Fed hike pricing may have risen from +18bp to +23bp since late April but pricing through to year's end remains stuck at 41bp, and yield elsewhere, most notably Europe are firming as the recovery there continues to gain traction.”

“Trump’s reflationary policies already faced significant obstacles, notably the challenge Republicans have in finding a consensus that satisfies both House conservatives and centrist Senators. The deepening scandal around “Russiagate” raises the political obstacles yet further, both as an all-consuming distraction and by reducing the president’s political capital/support in Congress. Political risks surge yet further in September when a new government funding bill is due and the debt ceiling comes into play.”