USD strength depends on how bad inflation happens to be when the Fed acts – Commerzbank

Will the US central bank Fed get a handle on inflation or is it out of control? The Fed is being seen as being much more active than many other central banks. Depending on how bad inflation is at that time, the US dollar could enjoy further strength, economists at Commerzbank report.

US inflation expectations are still anchored

“If the FX market assumed that USD positions carry high inflation risk tighter monetary policy would initially have to compensate for this lack of trust and would have a USD-positive effect only after that. We are still a long way away from that scenario.” 

“For the time being US inflation expectations are still anchored. And for the time being, the Fed is being seen as being much more active than many other central banks. Whether it will be seen as being sufficiently active to generate USD strength depends on how bad inflation happens to be at that point.”