Policy makers may need to raise their long-run projection for federal funds, now at 2.8%, to support the greenback. Pimco says rate hikes are becoming bearish for the currency because of the view that each one brings the central bank closer to its final destination.
That explains why the currency has been falling, even though yields are rising and the market is optimistic about U.S. growth. Given Jerome Powell's confidence in the economy and growing calls for four hikes this year, it's not far-fetched to expect policy makers to nudge up their long-run rate outlook. And for the dollar to find some strength.
Source: Bloomberg Pro Terminal
Trader Bozhidar Arabadzhiev
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