FXStreet (Guatemala) – Derek Halpenny, analyst at the Bank of Tokyo-Mitsubishi UFJ, Ltd noted that the Chief Economist of the World Bank has joined IMF Managing director Lagarde in urging the Federal Reserve to delay raising the federal funds rate when the FOMC meets next week.
Key Quotes:
“As the FT points out in its lead story this morning, were the FOMC to raise next week it would be doing so against the advice of the two institutions created at Bretton Woods as guardians of global economic stability.”
“Of course were the Fed’s decision based just on global financial conditions a delay would be inevitable but global conditions must be weighed up against the domestic economic conditions and on that front the reasons for hiking now are a lot more compelling. The NFIB Business Optimism Index yesterday showed more resilient confidence than expected.”
“What will be intriguing over the coming days will be how the broader financial markets react to the slow creep higher in US short-term yields as investor optimism improves.”
“The 2-year UST bond yield is today trading above the closing high of last year and at a level not seen since April 2011.”
“Short-term yield spreads are creeping more in favour of the US dollar and this development is likely to reinforce support for the dollar versus the G10 non-commodity currencies (EUR, JPY and CHF).”
“If EM FX and G10 commodity currencies continue to rebound as short-term yields in the US advance it would be a signal to the Fed that the most recent spell of market turmoil was more specifically related to China fears rather than a Fed rate increase.”
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