USD inflection point requires a dovish pivot and that is still not in sight – OCBC

Economists at OCBC Bank analyze USD outlook after the Fed maintained optionality with regard to another hike down the road.

Risk sentiment comes under pressure

USD inflection point requires a dovish pivot and that is still not in sight. More entrenched disinflation trend and further softening in labour market are prerequisites for a peak and perhaps pivot to play out. 

For now, hawkish repricing can see UST yields climb higher alongside the USD while risk sentiment comes under pressure. 

Alongside higher for longer, upward pressure on inflation and yields may persist. This can result in a deterioration of global growth/inflation mix and can cause headwind to risk appetite and undermine Asian FX, especially those that are net-Oil importers, such as THB, PHP, KRW, JPY.