US Dollar: Energy risks support USD strength – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes the US Dollar (USD) is stronger against major currencies, with the Euro (EUR) lagging as French and Italian bonds lead a renewed global bond sell-off. Persistently high energy prices, highlighted by IMF commentary, are seen skewing risks for inflation, policy rates and bond yields higher, supporting USD and energy exporters’ currencies over energy importers’ currencies.

High energy costs bolster USD outlook

"USD is up against all major currencies. EUR is underperforming as French and Italian bonds lead the renewed sell-off in global bonds."

"The September 15-16 FOMC meeting minutes (7:00pm London, 2:00pm New York) are likely to look somewhat dated after recent calls for patience from key Fed officials (Williams, Jefferson, and Bowman). Recall, the FOMC’s September hike came with a clear hawkish tilt and unanimous backing."

"Bottom line, persistently high energy prices keep risks to inflation, policy rates, and benchmark bond yields skewed to the upside, while favoring energy exporters’ currencies and USD over energy importer’s currencies. US growth outperformance and strong foreign appetite for US securities give USD an added boost."