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Insurance rate cuts likely to re-steepen 2-10Y UST yield curve at the initial stage, bolster DXY Index: Scotiabank

insurance rate cuts could re-steepen the 2-10Y UST yield curve at the initial stage, bolstering the DXY Index. However, without an aggressive stance on further reductions, the steepening trend could reverse along with escalating risk Aversion, according to the latest research report from Scotiabank.

The Fed released the minutes of the July 30-31 FOMC meeting, saying "most participants viewed a proposed quarter-point policy easing at this meeting as part of a recalibration of the stance of policy, or mid-cycle adjustment." Investors have scaled back some expectations for future rate cuts, as shown by Fed Funds Futures prices.

In addition, the minutes said that "participants generally judged that the risks associated with trade uncertainty would remain a persistent headwind for the outlook." The US and China are less likely to reach a trade deal anytime soon, particularly if taking into account ongoing social unrest in Hong Kong and US arms sale to Taiwan, the report added.

The New York Times reported on Monday that "White House officials have begun preparing options to help bolster the American economy and prevent it from falling into a recession, including mulling a potential payroll tax cut and a possible reversal of some of President Trump’s tariffs," citing people familiar with the discussions.

"We are awaiting Fed Chairman Powell’s Jackson Hole speech set for Friday, and reckon global monetary easing would be supportive of EM Asian currencies should external uncertainties remain steady," Scotiabank further commented in the report.

By Debarati Bir
  • Market Data
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