FXStreet (Barcelona) – Sean Callow of Westpac, sees the Fed hiking rates twice this year – September and again during 2015-end, and expect USD to struggle in short-term but rebound higher multi-week.
Key Quotes
“The FOMC meeting delivered the usual statement plus a quarterly forecasts and a lengthy media conference by Chair Yellen. Of these, the violent market response was very much driven by the “dot plots”. These provide an update on where all FOMC members (not just voters) expect the funds rate to be at year-end and “longer run”. The passage of 3 months without a rate hike saw 4 hawks cut their projections from above 1.0% to below, presumably to the 0.75-1.0% range i.e. 3 rate hikes. There were also 5 looking for 2 hikes, 5 for just 1 (previously 1) and still 2 expecting steady rates until 2015.”
“These projections are deliberately anonymous but from public comments we know that there are consistent hawks and doves whose views fail to win over the majority. Hence the focus is on the view of the middle of the FOMC, where we find the likes of Yellen, Fischer and Dudley.”
“….the median projections for the funds rate for Dec of 2015-2017 have fallen from the Dec 2014 FOMC meeting to Mar 2015 and again in June. To be sure, the forecasts were lowered less dramatically this time than in March, when the harsh winter and port strike were hammering Q1 growth.”
“But it was still notable that the 2016 median forecast was trimmed 25bp to 1.625% and that as many as 5 now project just 1 hike this year.”
“Westpac’s view remains for the first tightening in Sep, with another by year-end. But for markets which had bought US dollars and driven up yields in the hours preceding the release, it was an obvious setback.”
“USD could struggle short term, though with our US data surprise model pointing to improved data momentum relative to consensus in coming weeks, we remain positive on USD multi-week.”
(Market News Provided by FXstreet)