Nordea: US dollar to keep rocketing

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Nordea with the note:

It seems as if chair Powell is already running for the hills in the average inflation targeting relationship. A few months of vastly overshooting actual inflation and Powell and the FOMC aborts the AIT-regime. This was almost faster than even we dared to anticipate, even if we have been clear frontrunners in calling for an early tapering discussion within the Fed due to the spike in inflation that would arrive in Q2.

After Powell ran for the hills, yield-curve-steepenistas started running for their lives with 5s30s flattening as if tapering had already been launched. Taper talks ought to be ultra-good news for 2s5s steepeners, but bad news for those who betted on the Fed allowing a complete melt-up in inflation expectations and activity that could take 30yr bond yields much higher. USD 5s30s flattened 150 bps during the 12-month tapering period in 2013/2014. What about in 2021/2022, if Fed tapers already in September?

Chart 1. Markets starting to trade as if tapering was already launched

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.