We expect the Fed to maintain a tightening bias, likely aiming to show the market that policy could be tightened further if needed.

The market is trying to unpack the nuances between the Fed’s rhetoric, data trends and surprises, and the aggressive tightening of financial conditions. There is a bit of a tug and war between these indicators, especially as some of the recent sell-off in longer-dated USTs doesn’t jibe with the data, Fed repricing or macro setup. Instead, it likely reflects a mismatch of supply and demand. That’s not fundamentally supportive of the USD, especially if breaks the growth cycle. 

While we expect the Fed to deliver more of the same, it’s unclear how much further gains the USD will achieve unless the Fed appears more willing to open the door to more hikes.