US Dollar: Policy reality supports resilience – OCBC

OCBC Bank strategists Sim Moh Siong and Christopher Wong argue that Treasury buybacks are unlikely to trigger sustained Dollar weakness without clear Federal Reserve support to cap yields. Sticky US inflation and resilient growth underpin a hawkish Fed bias and limit scope for fiscal‑monetary coordination. They prefer to stay neutral on the USD, noting Jackson Hole could reinforce the Fed’s inflation‑fighting commitment.

Fed stance underpins Dollar resilience

"For the USD to weaken meaningfully following the Treasury's buyback announcement, markets need evidence that the Fed is willing to support the Treasury's efforts to keep yields contained. We think that is unlikely."

"Recent US data continue to point to sticky inflation and resilient growth. July core PCE inflation, the Fed's preferred inflation gauge, rose 0.2% MoM and 3.3% YoY, in line with expectations. While inflation has eased from its peaks, annual price pressures remain uncomfortably high and continue to support a hawkish bias in Fed policy."

"For now, we prefer to remain neutral on the USD rather than chase the latest bout of USD weakness."

"Questions around the Fed's reaction function and concerns that policymakers may be placing less emphasis on inflation control have increased market focus on Chair Warsh's comments at Jackson Hole. The USD could find support if Warsh and other Fed officials push back against debasement concerns and reaffirm their commitment to returning inflation to the Fed's 2% target."