FXStreet (Delhi) – Research Team at Danske Bank, suggests that when looking at the previous hiking cycles there is a tendency for the USD (DXY index) to weaken after the first Fed hike. Key Quotes “The development in implied FX volatility and notably in the correlation between the dollar and ATM volatility is less conclusive. As the Fed hike is more or less fully priced in the market, the hike in itself should not lead to higher FX volatility.” “In 1994 there was no significant change in implied volatility following the beginning of the Fed hike cycle. Instead, the correlation between the DXY index and implied volatility changed from positive prior to the Fed hike to negative afterwards. In 1999 implied volatility traded higher along with the decline in the DXY, while the DXY versus volatility correlation remained negative.” “Finally, both DXY and implied volatility declined after the Fed hiked in June 2004. Back then, the DXY versus volatility correlation broke down, as it remained around zero for nearly six months and then started to become increasingly negative again.” For more information, read our latest forex news.