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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
USD
The USD index sits comfortably off earlier October highs. The DXY last near ~106. Fed speak on Monday noted that the central bank is looking at tighter financial conditions and its impact on the economy in judging whether policy needs to be tightened further.
- Vice Fed Chair Jefferson stated, "“I will remain cognizant of the tightening in financial conditions through higher bond yields and will keep that in mind as I assess the future path of policy”.
- The first chart below overlays the Goldman Sachs US financial conditions index (FCI), which is inverted on the chart, against the J.P. Morgan US growth forecast revision index. Typically, tighter financial conditions in recent years have often led downgrades to the US growth outlook.
- This is obviously an increased watch point for the Fed, as the Goldman Sachs FCI is not too far off its tightest levels for 2023. This is yet to impact growth expectations, at least based off the JPM index. Note data surprises are still holding up reasonably well.
Fig 1: Goldman Sachs US FCI (Inverted) & JPM US Growth Forecast Revision Index
Source: Goldman Sachs/J.P. Morgan/MNI - Market News/Bloomberg
- The flow on effect, from a more cautious Fed outlook, to the USD would be via waning yield differentials against the other major developed economies.
- Still, it is early days, with yield differentials only slightly off recent highs on an unweighted basis. The second chart below plots this yield differential against the DXY index.
Fig 2: DXY Versus US- G3 2yr Yield Differential (Unweighted)
Source: MNI - Market News/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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