DBS Says Dollar Rally Faces Limits as Fed Pushes Back on October Hike
2▲0 ▼0Impact / 5
DBS Group Research economist Philip Wee says the Dollar's three-week rally is losing monetary-policy support as senior Federal Reserve officials push back against expectations for another rate hike at the October 28 FOMC meeting. Wee argues that the source of rising long-dated Treasury yields is becoming increasingly important for the USD, since higher term premia linked to debt supply, fiscal sustainability and market credibility may offer less support than Fed-driven tightening. He notes that higher yields driven by Fed tightening can support the Dollar, while higher term premia driven by those concerns need not. The November 3 US midterm elections add another potential constraint to the Dollar outlook, with President Donald Trump and his administration facing voter backlash over rising living costs as tariffs and the Iran conflict drive up grocery and fuel prices. Wee adds that if Republicans lose control of the House, markets could reassess the US exceptionalism narrative that supported the Dollar after its post-Liberation Day sell-off.