Another round of robust US economic data and renewed hawkish rhetoric from Fed officials has given the US dollar a boost this week. With economic activity holding up better than we and most others had anticipated and price pressures appearing more persistent than hoped, the risks to US interest rates have shifted back to the upside. Two (admittedly non-voting and perma-hawkish) FOMC members even suggested they favoured a 50bp hike at the February policy meeting. The minutes from that meeting, which may give an indication of how widespread that sentiment was, are due next week as is a further raft of US activity and inflation data: both now look like potential catalysts for further dollar strength. With the DXY index still barely up on the year and still a long way off its autumn peak, the greenback has plenty of room to extend its rebound.
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