USD: Fed minutes in focus

The IMF delivered a warning signal yesterday as it cut its year-ahead world GDP
forecast for the third time this year, from 2.9% to 2.7%. Interestingly, the theme of
excessive tightening and the damage to the world’s economy has taken a more
central role in the IMF report. It seems, however, quite far from the rhetoric of the
Federal Reserve and most other central banks, which continue to point to the need
to fight inflation while accepting a degree of economic damage.
This is the narrative that is keeping the general trend in risk assets bearish and the
dollar supported, and we do not expect it to change until 1Q23.

So far this week, extra US drivers have been more relevant for global markets and
dollar swings, and most of the focus will remain on developments in a) the UK bond
market and the GBP impact; b) the re-escalation in the Ukraine conflict; c) Asia’s
tech stocks after fresh export restrictions by the US.
Domestically, the US calendar includes PPI for September and the 21 September
FOMC meeting minutes. The latter should, in our view, show some good degree of
alignment within the committee around the need for another large (75bp) move in
November, although diverging members’ expectations around the terminal rate
may trigger some adjustments in the early/mid-2023 Fed funds pricing. Anyway,
we don’t see any dollar correction being more than short-lived, especially
considering the risk-averse developments in Europe and Asia.

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