Dollar Firm as Hawkish Fed Dominates

March 23, 2022
  • Fed messaging remains as hawkish as ever; it wasn’t just Bullard, as Daly added to the hawkish chorus; market pricing for Fed tightening continues to adjust as one would expect; parts of the U.S. yield curve continue to flirt with inversion; regional Fed manufacturing surveys for March continue to roll out
  • U.K. Chancellor Sunak gives his budget statement shortly; U.K. reported higher than expected February CPI data; March eurozone consumer confidence will be reported; Czech National Bank is tilting more hawkish; Hungary hiked the base rate 100 bp to 4.4% and signaled a longer cycle ahead
  • Singapore reported mixed February CPI data

The dollar remains firm as the hawkish Fed remains the major market driver. DXY is trading near 98.66 and this month’s cycle high near 99.418 should eventually be tested. Our next target after that is the May 25 2020 high near 99.975. The euro remains heavy and is still stuck near $1.10. We still expect an eventual test of this month’s cycle low near $1.08. GBP bounce ran out of steam near $1.33 and is back trading near $1.32 ahead of Chancellor Sunak’s budget speech (see below). We look for an eventual test of this month’s new cycle low near $1.30 and then the November 2020 low near $1.2855. USD/JPY traded today at the highest since January 2016 as it tested that month’s high near 121.70. It is back trading near 121 but we look for an eventual break and then a test of the November 2015 high near 123.75. Between the likely return of risk-off impulses and the even more hawkish Fed outlook for tightening, we believe the dollar uptrend remains intact.


Fed messaging remains as hawkish as ever. After Powell’s comments Monday, it was Bullard’s turn yesterday. He said the Fed needs to move aggressively to curb inflation and that he thinks 50 bp moves would “definitely be in the mix.” The plural "50 bp moves" is clearly not a base case yet but Bullard is certainly pushing hard for it. That said, it's interesting how Bullard (and Waller) have pulled Powell and the consensus “wait-and-see” Fed thinking over to their more hawkish view. Bullard added that he wants to get policy to “mildly restrictive” this year. What constitutes "mildly restrictive?" We know Bullard wants rates above 3% this year so for now, let's say his view of "mildly restrictive" is somewhere between 3.0-3.5%. Lastly, Bullard said that the Fed allowed balance sheet expansion to go on for too long and that it should get going and start runoff.

It wasn’t just Bullard, as Daly added to the hawkish chorus. She said “It’s time to remove the accommodation we’ve been providing. That means marching up to neutral and looking at whether we need to go over neutral -- so tighten a little bit, restrict the economy -- to ensure that inflation comes back down.” Powell, Daly, and Bullard speak today. Since all three were the sources of hawkish comments so far this week, expect more of the same today.

Market pricing for Fed tightening continues to adjust as one would expect. WIRP suggests 50 bp moves are about 70% priced in for both May 4 and June 15. Swaps market is pricing in 225 bp of tightening over the next 12 months that would see the Fed Funds rate peak near 2.75%. We have been calling for such a move for weeks now, and we still see risks that this peak moves closer to 3% (or above) in the coming weeks. This move in U.S. rates should continue to support the dollar.

Parts of the U.S. yield curve continue to flirt with inversion. The 5- to 10-year and the 3- to 10-year curve both inverted earlier this week but are currently back to zero. At 23 bp, the 2- to 10-year curve is awfully close. As we noted yesterday, what makes this potential inversion for parts of the curve so strange is that the more widely watched 3-month to 10-year curve has steepened at the same time. At 188 bln, it’s the steepest since February 2017 and suggests recession fears may be overblown. We will be putting out a longer piece this week that discusses the risks of yield curve inversion.

Regional Fed manufacturing surveys for March continue to roll out. Yesterday, Richmond Fed came in at 13 vs. 2 expected and 1 in February. Kansas City Fed reports tomorrow and is expected at 21 vs. 29 in February. Readings so far have been mixed, as Empire Survey came in at -11.8 vs. 3.1 in February and Philly Fed came in at 27.4 vs. 16.0 in February. New home sales (1.1% m/m expected) will be the only U.S. data release today.


U.K. Chancellor Sunak gives his budget statement shortly. He will be under tremendous pressure to deliver some relief to U.K. household finances that are already buckling under rising inflation and high energy prices that will go even higher this spring, as well as a planned payroll tax hike to help fund the National Health Service. Ahead of the statement, Sunak said “I want people to know, they should be reassured, I will stand by them. Where we can make a difference, of course we will.” The good news is that strong growth has helped boost revenues and limit outlays, which gives Sunak some room to provide some limited relief with potential cuts in fuel and energy taxes as well as increases in social spending. Sunak has ruled out any changes to the payroll tax hike planned for April.

U.K. reported higher than expected February CPI data. Headline came in at 6.2% y/y vs. 6.0% expected and 5.5% in January, CPIH came in at 5.45y/y vs. 5.4% expected and 4.9% in January, and core came in at 5.2% y/y vs. 5.0% expected and 4.4% in January. This was a new 30-year high for headline and yet Bank of England tightening expectations remain fairly steady. WIRP suggests a hike at the next meeting May 5 is fully priced in, with nearly 40% odds of a 50 bp move then. Swaps market sees 150 bp of tightening over the next 12 months that would see the policy rate peak near 2.25%. Bailey speaks today.

March eurozone consumer confidence will be reported. It is expected at -12.9 vs. -8.8 in February. If so, this would be the lowest since February 2021. There will be several other key eurozone sentiment readings reported this week. French business confidence will be reported tomorrow and is expected to drop two points to 110. Italy reports March consumer and manufacturing confidence Friday, with both expected to fall from February to 108.0 and 111.3, respectively. German IFO business climate will also be reported Friday and the headline is expected at 94.2 vs. 98.9 in February. Current assessment is expected at 96.6 vs. 98.6 in February, while expectations is expected at 92.0 vs. 99.2 in February.

Czech National Bank is tilting more hawkish. Deputy Governor Marek Mora said “I expect a debate about another rate hike, and the only question is how big. Eventually, I believe the circumstances will force us to go well above 5% with rates.” He added that he’ll probably back at least a 50 bp hike at the next meeting March 31 and supports lifting it more to “as high as necessary.” CPI inflation came in at a whopping 11.1% y/y vs. 10.4% expected and 9.9% in January, the highest since June 1998 and further above the 1-3% target range. Next policy meeting is March 31 and we believe another 75 bp hike to 5.25% is likely. Swaps market now sees the policy rate peaking at 5.5% over the next 12 months but we still see upside risks here.

National Bank of Hungary hiked the base rate 100 bp to 4.4%, as expected, but signaled a longer cycle ahead. The bank said that it needs to hike rates in bigger steps and must continue the tightening cycle for longer due to “increased fundamental inflation risks.” Despite this more hawkish forward guidance, swaps market still sees the base rate peaking near 5.0% over the next 6 months. Even before this most recent decision, we saw upside risks but now these risks are even higher. The bank is also expected to hike its 1-week deposit rate by 30 bp to 6.15% at its weekly tender tomorrow after leaving it steady at 5.85% last week. February headline inflation came in at 8.3% y/y, the highest since August 2007 and further above the 2-4% target range, so it’s clear more aggressive tightening is needed.


Singapore reported mixed February CPI data. Headline inflation came in a tick higher than expected at 4.3% y/y vs. 4.0% in January, while core came in a few ticks lower than expected at 2.2% y/y vs. 2.4% in January. This is the highest headline reading since February 2013. While the MAS does not have an explicit inflation target, rising price pressures are likely to lead to another round of tightening at its April policy meeting. At the last meeting in October, the MAS tightened with an increase in the slope of its S$NEER trading band and we expect the same this time around.  

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2022. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction