Dollar to rise soon  another 5% on sticky inflation, says Acadian

BLOOMBERG

The dollar is poised to jump with Treasury yields in the coming months as still-elevated inflation will likely push the Federal Reserve toward further policy tightening, says Clifton Hill at Acadian Asset Management.
Hill, a global macro portfolio manager, sees the US currency gaining an additional 5% versus many peers, with the trigger coming as policy makers signal further interest-rate hikes in the leadup to their October 31-November 1 meeting. He’s prepping for that outcome by favoring the greenback against the Australian, New Zealand and Canadian dollars, as well as the yen.
His views on the Fed and the dollar proved prescient earlier this year. In February, he correctly predicted that the yen would fall back toward the 32-year lows it hit in 2022 as the Fed tightened further than many market participants anticipated.
The US currency stabilised  after falling from a six-month high as authorities in Japan and China ramped up support for their currencies. But as Hill sees it, the decline to start the week will amount to a bump in the road as markets reprice the Fed’s path. It’s a chain of events he also expects will push 10-year Treasury yields close to 5%, a level last seen in 2007, from roughly 4.3% now.
“The Fed may have to leave the possibility open of hiking further,” potentially two or three more times, said the money manager, whose firm oversees about $100 billion. “Inflation actually going up away from global central banks’ targets in the fourth quarter would be a game changer for markets.”
Traders expect the Fed to stay on hold at a policy meeting next week, and see roughly a 50% chance that it delivers another hike at the following decision on November 1, before pivoting to cuts next year. The Fed pushed its benchmark rate to the highest in more than two decades in July to tame inflation.
The dollar gained the past eight weeks, buoyed by the US economy’s resilience relative to other major peers, in particular Europe and China. US consumer-price index data is expected to show inflation pressure reaccelerating, which risks jolting the Treasury market. The CPI is expected to have risen 3.6% in August from a year earlier, from 3.2% in July, even as the core measure — which removes food and energy costs — fell to 4.3%, the median estimate in a Bloomberg survey shows.
“Every time that inflation comes down some, markets and economists extrapolate out that it will continue all the way down to 2% in short order,” Hill said. “But we are still well over 4% in US core inflation, and there is a good chance that it stays there, or increases back up this autumn into early next year.”