Goldman Sachs: CPI Set The Tone, And The Fed Followed Through

Goldman Sachs viewed “last week’s FOMC decision as largely in line with the market’s expected reaction function to stronger trends in the labor market and (relatedly) underlying inflation. For FX markets, the central bank policy decisions across the G10 brought into sharp relief that the Fed’s path is guided by a more-supportive policy mix of a steady economy and fewer domestic constraints on single-minded monetary policy.”

• “Meanwhile, the USD has been benefiting from safe-haven demand on the back of rising global risk premia. The strong USD has naturally prompted a variety of attempts from policymakers abroad to slow the USD’s ascent - via faster rate hikes and the first bout of strong-sided JPY intervention since 1998 - which is still consistent with our “reverse currency wars” thesis.”
• “However, we largely view these policies as insufficient to reverse the macro factors, and more of a sign of discomfort with the speed of USD appreciation than a sign that the USD is at the peak.”
• “In short, we still see more USD strength ahead, and think markets will remain in the FCI Loop until there are sustained signs that inflation is cooling and/or global growth is recovering.”