There had been a solid reversal in USD positions over the past week and that begs the question – are we at an inflection?

Short answer has to be no. The main cause of that reversal was the UK government pivoting from their policy mistake that saw GBP/USD charging towards parity. The pivot put 4 cents back into the pair. But, you have to ask is the structure difference in the pair gone? We don’t think so.

So, is there a pivot? We believe that when in doubt go back to first principles and look at central bank differentials – therefore look to Fed speak. Here is the latest Fed speak that should highlight that the USD still presents as King amongst all others in the current environment.

First look at Minneapolis Fed president Neel Kashkari. Just this week he stressed there is more work to be done on inflation and he is not even close to a hard liner. He believes the Fed is a long way from a pause in tightening let alone cutting rates. He also states there is no evidence inflation has peaked, but in the same breath believes the Fed will get inflation under control.

Next, Cleveland Fed president Loretta Mester reiterated her belief that inflation is still unacceptably high and will remain so in the near future. Governor Lisa Cook, one of the newest voting members having joined the board this year last week stated that to achieve price stability rate hikes will be ongoing. That the Fed is likely to keep policy restrictive for a period of time. And that the Board needed to stamp out the dreaded ‘inflationary psychology’ phenomenon from taking hold.

All this suggests the USD, as the safe-haven asset in FX, is not going to ease in the coming period and that was seen by the US rising against all G10 currency at the back of last week. EUR/USD was back at $0.9795. GBP/USD at the lower end of $1.11 to $1.1165. AUD/USD steadied to $0.64 but was below $0.64 at one point in the cycle.