Change in rates is likely to favour the USD - BNPP

Analysts at BNP Paribas suggest that the net change in yield differentials they anticipate will still favour a rise in the USD versus the JPY and EUR this year.

Key Quotes

“However, the changes in ECB and BoJ policy we expect this year should once again remind markets of the limits to policy divergence, a lesson driven home repeatedly in 2015 and 2016. The same global reflationary forces which are supporting Fed policy prospects are also boosting inflation and activity in other G10 economies, and this is leading to increased market expectation that central banks outside the US could start to tighten monetary policy.”

“Moreover, gains in the USD in response to tighter US monetary policy are magnifying reflationary pressures outside the US and prompting the US administration to increase the pressure on foreign central banks to reduce policy accommodation.”