International Finance: Wall Street rips up dollar playbook as 2022’s top bet crumbles

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The dollar looked unstoppable earlier this year when investors were adding to bets on inflation and US rate hikes. Now they’re turning against it in droves.

fuel bets of a slower pace of rate hikes. Most have arrived at a similar conclusion: US exceptionalism is waning.

“US inflation is showing signs of moderating and the central bank is conscious of the lagged effect rate hikes would have on price growth,” said James Athey, investment director of rates management for Abrdn in London. At the same time, “we think that divergence has reached its limit”, he said, referring to the difference between monetary policy in the US and Japan.

The latest Fed minutes back their view. Most officials agreed it would soon be appropriate to slow the pace of rate increases. Expectations for the peak in Fed rates have dropped to below 5%, from above that in early November, according to overnight index swaps.

 

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