The continued low inflation outlook in United State, despite falling unemployment, suggests the risks are skewed toward a later hike than December.
Polarization may be having a mixed effect on the USD despite its dampening impact on US yields, because there is evidence the European labor market has experienced similar polarization, says BoFAML. Such a development makes sense given forces such as automation and foreign competition would be similarly damaging to middle-skilled employment everywhere.
Consequently, polarization may be contributing even more to downside wage and deflationary risks in the Eurozone, added BoFAML. Indeed, the ECB effectively made a "quasi-announcement" of QE2 at its October meeting, which should also keep EUR-USD lower. On net, add labor polarizationto the list of reasons for a slow Fed hiking cycle and pushing out additional upside in the USD.
