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FOREX: ###POV:USD DOWNSIDE SCOPE;UST 2-30s FLATTENING RISK;FED DOVISH HIKE EYED
- Since the beginning of the year, the correlation between the DXY and UST
2-/30s yield spread has been clear, but the dollar's modest recovery since
September has broken down that relationship somewhat.
- The Dec FOMC meeting will see Fed Chair Janet Yellen's final dot plot filed
(please note this is Yellen's penultimate FOMC meeting) and a 'dovish hike' from
the Fed could be the perfect excuse for the UST 2-/30s yield spread to retest
8-year lows at 88bps, recouple with the USD and drag the greenback lower.
- A 25bps hike is widely priced in today with little change expected to the
- The Summary of Economic Projections (SEP) is expected to show a slightly
firmer growth path with the inflation trajectory broadly unchanged.
- At the time of writing, the DXY sits just above the 50-DMA at 93.820 with the
100-DMA below at 93.338.