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Don’t see drastic shift in US Fed’s policy; expect dollar to peak in H1 of 2022: Standard Chartered

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Don’t see drastic shift in US Fed’s policy; expect dollar to peak in H1 of 2022: Standard Chartered

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Manpreet Gill, Senior Investment Strategist, Standard Chartered Bank, believes that the US Federal Reserve has signaled its intentions fairly well this time around, including the rate hiking cycle. Taking that as a cue, Gill believes there’s no reason to expect a dramatic shift in US Fed’s policy going ahead. Gill believes there's room for the US dollar to peak in first half of 2022.

Manpreet Gill, Senior Investment Strategist, Standard Chartered Bank, believes that the US Federal Reserve has signaled its intentions fairly well this time around, including the rate hiking cycle. Taking that as a cue, Gill believes there’s no reason to expect a dramatic shift in US Fed’s policy going ahead.
"I think the Fed has signaled fairly clearly what its intentions are including the rate hiking cycle. So from that perspective – if you compare what we got in the Fed minutes yesterday, they were hawkish but then again, US money markets are pricing in a high probability of a rate hike in March, they're already pricing in a high probability of three rate hikes to the year. So even if we get that, it's not likely to come as a huge surprise to markets.," he said.
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For emerging markets (EMs), Gill expects the dollar to be a key determining factor. He believes the dollar has room to peak in first half of 2022 and that will be an important trigger to reassess EMs. Gill believes the theme for EMs in 2022 will be how they pick up the baton given that Fed rates could prove to be a headwind.
"We actually think that the dollar has room to peak in the first half of 2022 and that for us would be an important trigger to reassess emerging markets," he said.
"I think the key question as we go through the year, of course, will be whether emerging markets pick up the baton at some point and that's where higher sort of Fed rates could be a headwind especially with strong dollar but that's something we will be watching quite closely," he added.
As far as equity markets are concerned, Gill expects the returns to be muted in 2022. He shared that it’s unrealistic to expect the kind of high return and low volatility that equity markets delivered in 2021.
He said, "We will do an encore of 2021 but a more muted one. I think the broader theme we are looking at is what we call a winding road to normality and 2021 was far from normal."
"It was much better than normal from an equity market return perspective alone. But it's unrealistic to expect that sort of high return, low volatility environment to continue forever. So for us, it's still equities outperforming," he further added.
For the full interview, watch the accompanying video.
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