FXStreet (Córdoba) – According to Esther Reichelt, analyst at Commerzbank, for the US dollar it is less important whether the first rate rise in nine years comes in September or December (or possibly even in October). The US dollar will only strengthen when the Fed convinces the market that the fundamental environment justifies more aggressive rate hikes than the market has priced in so far.
Key Quotes
“The focus of the FX market is on the Fed meeting on Thursday and the market does not expect an interest rate rise. The scepticism of market participants probably even goes as far as to say it would hardly help the US dollar if the Fed were to express confidence that it can start hiking rates soon”.
“The currency market is hoping for guidance from the Fed meeting on Thursday on whether and – if so – when the Fed will lift interest rates this year. Hardly anyone on the FX market is expecting a first rate hike from the Fed on Thursday. However, for the US dollar it is less important whether the first rate rise in nine years comes in September or December (or possibly even in October). The US dollar will only strengthen when the Fed convinces the market that the fundamental environment justifies more aggressive rate hikes than the market has priced in so far”.
“That said, the Fed should find it difficult to finally win the market over to its more optimistic outlook. After all, the market expectation of the Fed funds rate has clearly deviated from the FOMC’s forecasts for some time already. Up to now, the market has always proven right and the Fed has had to adjust its outlook to the market projection. The market’s more cautious interest expectations should be largely due to its more pessimistic inflation outlook; the market seems to harbour doubts that inflation will rise to the Fed’s 2% target on a lasting basis, as the FOMC expects”.
“The market wants to see hard facts before it believes in the rate hiking cycle. And that first and foremost means clear signs that inflation is really picking up”.
According to Esther Reichelt, analyst at Commerzbank, for the US dollar it is less important whether the first rate rise in nine years comes in September or December (or possibly even in October). The US dollar will only strengthen when the Fed convinces the market that the fundamental environment justifies more aggressive rate hikes than the market has priced in so far.
(Market News Provided by FXstreet)
