Peter Cardillo: Dollar may spike up towards 2022 highs before witnessing major reversal: Peter Cardillo
Do tell us from where you are standing and watching what is happening as far as economic growth worries for the world are concerned as those seem to be subsiding and not as anaemic as earlier thought. Inflation is coming gradually under control. Do you see the dollar index with bond yields rising the way they are? Do you see a further fall in the dollar index?
I think we will probably just kind of hoover around these levels for now. I think there will probably be one more spike upwards and that is because of the fact that the Fed obviously will raise interest rates this month most likely by 50 bps and then probably in the February-March meeting by another 25 bps. So I think the dollar will likely spike up towards 2022 highs and then we may witness a major reversal.
The dollar is at a seven-month low now, consumer prices in the US are seeing a dip. Are these the strongest indications yet that the rate hike cycle is now reaching its peak and perhaps in February we would see maybe a 25 bps kind of rate hike, what are you going with?
A 50 bps because I think the Fed wants to send a loud message that yes there has been progress on inflation but they do not want the markets to overreact. The rates would probably have to go beyond what perhaps the Fed’s intentions are at the moment. They have talked about going over 5% so. If you factor in a 50 bps this month and another 25 bps at the February-March meeting that would basically bring the Fed funds rate around 5-8.5. At that point I think if the inflation story continues to improve which I think it will then you can expect a pause and that means that the tightening cycle will probably end.