USD: Complacency over Fed hikes - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the preferred funding currency status of the USD has probably also contributed to a sense of complacency over the risk of Fed rate hikes.

Key Quotes

“The market has been more willing to believe that rate rises in the US may be persistently delayed.

On two occasions this year, the Fed has warned that a hike in coming months is likely.  This was the case in May this year, until the hike plans were scuttled by the release of a sudden drop in payrolls growth in the May employment report, along with a sizeable downward revision to April.

In recent weeks, after payrolls have been strong in the last two months, the Fed has again put a hike on the table.  However, this time it is emphasizing data dependence, putting the onus on at least the next employment report for August, due on Friday, to make the case for a hike as soon as the next policy meeting on 21 September.

The USD firmed in May and has again in recent weeks on the possibility of an imminent rate hike by the Fed.

It remains to be seen if the labor data on Friday will be strong enough to push the Fed towards its second hike this cycle.  We are not convinced it will, in which case we might see the USD fall back again on resurgent demand for higher yielding assets and currencies.”