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EXCHANGE RATE MONTHLY AUGUST/SEPTEMBER 2004
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| As usual, the US Treasury market has been setting the direction for most other bond markets. US yields have fallen significantly in recent weeks, on signs of a slowdown in growth during Q2 and expectations that Fed rates will rise at just a gradual pace. We expect that the economy will pick up momentum again during the second half of the year. We also expect to see a continuation of the build up of inflationary pressures. Thus, while the Fed is likely to deliver another modest 0.25% rate hike in August, it could turn more aggressive on policy tightening post the November elections. Hence, we expect upward pressure to re-emerge on bond yields through the autumn and winter.
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