USD: Stagflation risk supports resilience – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong note that renewed Oil-driven inflation risks are tightening global financial conditions, lifting the US Dollar (USD) as yields rise and risk appetite weakens. They highlight that the Federal Reserve (Fed) can stay on hold given firm United States (US) data, but warns that sustained energy pressure could threaten US growth durability and reinforce a stagflation narrative that underpins Dollar strength.

Stagflation fears underpin Dollar strength

"Renewed oil-driven inflation risks are tightening global financial conditions, lifting yields and the USD while weighing on risk appetite."

"The USD firmed and gold softened as global yields rose, led by the short end."

"US data were firm, reinforcing expectations of an extended Fed hold."

"March retail sales surprised to the upside as consumers absorbed higher gasoline prices, likely partly offset by larger-than-usual tax refunds following the One Big Beautiful Bill Act."

"However, the April plunge in University of Michigan consumer sentiment to a record low flags downside risks to spending should the energy shock persist."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)