Fed signals some concern over the stronger USD – MUFG

Lee Hardman, Currency Analyst at MUFG, takes a note that the US dollar has strengthened sharply since the US election which prompted some concern yesterday from Dallas Fed President Kaplan who stated that “I watch the US dollar very closely”.

Key Quotes

“He cautioned that the “much stronger US dollar creates more strains on China” and “headwinds for our exporters”. The comments may help to dampen further US dollar strength in the near-term. However, the importance of US dollar strength as a constraint on Fed policy tightening has likely been dampened since the US election. Stronger domestic US economic fundamentals are expected to strengthen the case for faster rate hikes in the coming years with the Fed moving closer to meeting its twin policy goals. As a result, Fed policy may also start to move more into line with President Trump’s economic policies to put “America First” thereby reducing the influence of external factors.”