It is probably too early to dust off the policy-divergence playbook, but we still expect the USD to regain yield support and it should continue to do so as Fed expectations adjust towards the resumption of a tightening cycle.
We expect the Fed to resume its tightening cycle in December and that could help USD TWI revisit its cycle highs. The strength could manifest itself mainly against commodity and risk-correlated G10 currencies.
The USD may struggle to extend its gains further, however, unless we see a renewed sustained steepening of the US yield curve.
Copyright © 2016 Credit Agricole CIB, eFXnews™Original Article
