USD: Finally the FOMC showing its wild card - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 5, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Derek Halpenny, European Head of GMR at MUFG, notes that the US dollar surged yesterday with rhetoric from Chair Yellen, Vice Chair Fischer and NY Fed President Dudley all indicating the same stance, a December rate hike is “live”.

    Key Quotes

    “The important conditional aspect of the decision being data-dependent was of course maintained but in reality the message now from the FOMC is : we need a reason NOT to hike. Only a deterioration in the data or a notable upturn in financial market volatility will now derail the FOMC from raising the range of the federal funds rate by 0.25-point on 16th December.”

    “If anything the comments in Q&A by Chair Yellen following testimony on bank regulation showed increased confidence in the economy relative to the FOMC statement on 28th October. Labour market slack had diminished “significantly” and that the economy was “performing well”. Yellen advised the markets to focus on the “entire rate path over time” adding that she did not envision a very steep rise in rates.”

    “The futures implied federal funds rate at the end of 2017 is still nearly 110bps below the FOMC’s projected level. Yields are now beginning to respond to this rhetoric and the 2-year yield yesterday closed at 0.81%, the highest level since April 2011. A further modest rise would take the 2-year yield to levels not seen since the first half of 2010.”

    “The dollar is set to remain well supported in this environment, especially with economic data like we had yesterday. The non-Manufacturing ISM index surged back to 59.1 from 56.9 and clearly the drop last month was temporary. The jobs component within the report rebounded strongly too and is consistent with a rebound in the pace of jobs gains that slowed over the past two months. The ADP employment increase of 182k also points to a rebound in the pace of job gains tomorrow. The DXY index is quickly advancing back toward levels not seen since April of this year. Our current year-end forecasts imply that the DXY index will be close to the 100.00 level that marked the high of the year back in March.”
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