They say short and long-run inflation expectations are now well above their pre-pandemic range. The Citi/YouGov survey showed 12 month expectations at 4.1% (prior 3.1%) and 5-10 year inflation at 3.8% (prior 3.4%).
Comercial Banks Trading Positions
Our market forecasts through the balance of the year assume that US Treasury yields will rise but that the US Dollar will depreciate against most crosses.
The Dollar's correlation with Treasury yields tends to vary over time, and depends on the underlying macroeconomic fundamentals driving rates and FX markets
In a period of rising cyclical optimism, as we expect over the near term, we should anticipate a negative correlation, with rising rates associated with broad Dollar weakness
- We still remain slightly supportive in the near-term as we expect monetary and fiscal policy to remain highly accommodative but our conviction levels are simply pinned to our expectation that ETF outflows do not continue and we have some moderate inflows by the end of the year.
- With positive economic readings and in particular, positive jobs data market participants appear to be focused on the prospect of an earlier than anticipated interest rate hike. While real rates are still expected to be negative, any expectation that this could turn positive faster would really dampen investment flows.
- Our base case scenario is for gold prices to average $1,750 on average in 2022 as investment flows drop further.
- In the upside price scenario (which is the downside economic scenario), we forecast prices rising to $2,100/oz whereas the downside risk to prices (on the upside economic scenario) is limited and prices could fall to $1,600/oz.
USD has gained vs. peers, sending the DXY to session highs of 92.791 without fundamental catalyst, however, it is worth noting that month-end factors could be the reason
Credit Agricole suggests that its corporate flow model is pointing towards EUR/USD selling; and Barclays suggests the UST month-end extension at 0.12yrs