FXStreet (Delhi) – Research Team at BNP Paribas, suggests that as the Fed delivered its long-awaited 25bp rate hike, they believe the Fed result is likely to be significantly supportive for the dollar in the weeks ahead.
Key Quotes
“This is especially the case given the pullback in the USD in the first half of December and the shakeout in long USD positions ahead of the FOMC. Even a cautious path of Fed rate hikes over the coming year implies significant further widening in front-end yield spreads in the USD’s favour.”
“The Fed’s focus on exchange rate risks remains a headwind for USD momentum, with USD bulls likely to remain wary that very rapid USD gains could curtail rate hikes. We think this dynamic will ensure that USD gains are gradual. Notably, the pace of USD appreciation we anticipate should lead to a decline in the y/y pace of USD gains as we move through 2016, which should reduce Fed FX concerns somewhat. Sill, our economists expect that tightening financial conditions as EURUSD approaches parity in Q3 2016 are likely to drive a pause in the rate hike cycle ahead of the year end.”
“The nature of USD gains in the immediate future will depend on the risk environment. A key risk to our bullish USD view relative to the EUR, CHF and JPY would be a significant retreat in US equity prices as US front-end yields push higher, as these surplus economy funding currencies could benefit from a contraction in risk appetite.”
(Market News Provided by FXstreet)