An analyst in the US says inflation remains a concern despite Fed monetary policy being at a restrictive level. The resultant rise in yields, and the US dollar, is a headwind to US based multinationals.
The remarks come from a client note from Liz Young, head of investment strategy at SoFi (an online finance firm in the US). In summary:
- solid economic data is a good sign.
- monetary policy has been taken to a restrictive level. ... So far, it hasn’t had the full intended effect, and inflation remains a concern
- the rise in Treasury yields has put pressure on borrowers
- the rise in the US dollar puts pressure on firms that rely upon international revenue (rising USD pushes down the local (US) value of foreign receipts)
- “... happening at a time when we are hoping inflation will continue to fall in an orderly fashion back down to its target level ... the recent dollar strength and broadening interest rate differential for the U.S. ... when added to the intended effect of monetary policy tightening, the typical effects of higher borrowing costs, and the possible headwind to U.S. multinational corporations, the move looks more risky.”
The USD index, DXY. While the points made above are valid there are benefits of a rising USD to firms that import inputs, for example. Its not all bad news.
