Will the RBA raise rates again? Unless prices surge over summer, it's looking less likely 
Inflation: I've been analysing the Bank of England's forecast over the past two years – here's how they got it wrong 
The yen plunges to 34-year low despite interest rate hike 
Inflation: raising interest rates was never the right medicine 
The RBA has kept interest rates on hold. Here's why it'll be cautious from here on 
RBA's latest forecasts are grim. Here are 5 reasons why 
The Federal Reserve held off hiking interest rates 
Why the Bank of England is now more upbeat than the IMF 
Interest rates: Monetary policy is always political as central banks opt to back the financial sector 
Why central banks should stop raising interest rates 
If central banks don't start cutting them soon, it could actually increase inflation 
Governments have been able to overrule the Reserve Bank for 80 years. Why stop now? 
New cycle highs: Between late January and May, the US dollar fell 7.5% as an EM sell-off triggered (downward) revisions to expectations of Fed rate hikes and dragged 10y TIIPS yields down from over 70bp to below -10bp. But after meandering sideways through the summer, real yields have moved back up and the dollar has followed. On a trade-weighted basis, it’s now higher than it was at the start of the year.
Ever since the Trump’s US presidential election victory in November, the DXY has risen over 10.3% so far, major backed by higher front-end core yields as markets have repriced a reflationary outlook from expansionary US fiscal policy.
Policy mix extends USD cycle: the stronger growth, excitement about the potential effects of tax cuts and expectations of faster monetary tightening will take the dollar higher in H1’17, but like Icarus, it’s in danger of flying too close to the sun. It can rise while Europe is beset by political uncertainty and while the consensus is that President Trump will deliver faster growth but only slightly higher inflation, but if political concerns ease in Europe, the euro will likely bounce.
If the dollar does some of the Fed’s work for it, if stronger demand boosts the US trade deficit and if real yields are eroded by a further pick-up in inflation expectations, then the dollar rally should grind to a halt. It is not so much a case of Mr. Trump having feet of clay, as the dollar having wings of wax.
Where and when to fade USD strength: Fed has raised its hiking bias from 2 to 3 more hikes in 2017 that could hinder upside potential of this underlying pair.
Moving on the dollar, although FED has provided the substantial cushion to USD with its hawkish tones of monetary policy. Due to the Donald Trump's presidential election, the dollar continued to get a booster in conjunction with FED, whereas Euro is still clouded with Brexit and French & German polls, as a result, EURUSD heading for parity.
We expect EURUSD to trough around parity, before the French elections, unless Front National candidate Marine le Pen wins the presidency (in which case the low would be lower and later). USDJPY has further to run as the BoJ anchors nominal yields, but above 120, momentum should slow. We expect yield-seeking investors to return to EM currencies from Q2 onwards.
