USD: Dismissing slightly less hawkish tone by Brainard

Despite reduced volatility due to the US markets’ closure yesterday, the generalised
risk-off environment saw the dollar start the week on the front foot. The worst
performers since the weekend are the Antipodeans and the Swedish krona, which is
a testament to how the two poles of the market’s economic and geopolitical concerns – China and Europe – are affecting proxy trades in G10. US fresh trade restrictions on Chinese chip exporters and an escalation in missile strikes in Ukraine following the Crimean bridge blast look set to keep such proxy trades unattractive for now.
In the US, we heard some slightly less hawkish comments by Fed officials
yesterday. Admittedly, they did come from two of the most “dovish” members of
the FOMC – Lael Brainard and Charles Evans – who both seemed to suggest a higher
caution over excessive tightening, while still reiterating the commitment to fight
inflation. There is still little doubt among market participants that the overall
consensus within the FOMC is firmly hawkish, and that a 75bp hike in November
should not be particularly challenged by doves.
The US calendar includes the NFIB Small Business Optimism survey and a speech by
the Fed’s Loretta Mester (expect more hawkish remarks here). We continue to see
the general market narrative as predominantly dollar-positive for now, and expect
the 114.76 DXY late-September highs to be tested in the coming days.

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