19 Feb 2015
A delayed Fed rate hike likely to only dampen USD strength – BTMU
FXStreet (Barcelona) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, comments on the FOMC Minutes, noting that the minutes clearly highlight that the Fed remains cautious over the prospect of raising rates, further adding that a delay in hike will only dampen USD strength in coming months, but dollar should gain as other central banks ease and US growth outlook remains positive.
Key Quotes
“The Fed have signalled that they intend to begin raising rates from the middle of this year but the risks are clearly that they may wait a little longer. As a result, the market has moved to push back the timing of the first expected Fed rate hike until the end of this year.”
“The probability of the Fed dropping their “patient” signal at their upcoming FOMC meeting on the 18th March has declined thereby reducing the likelihood of a rate hike as early as at their 17th June FOMC meeting.”
“However, it is also important to consider as well that FOMC participants will subsequently have been reassured by the stellar non-farm payrolls report for January which should have made them more comfortable to begin raising rates.”
“Market attention will now even more closely scrutinize the upcoming semi-annual testimony from Fed Chair Yellen on the 24th February for a more timely update on the Fed’s policy thinking.”
“If the first Fed rate hike is delayed beyond the middle of this year, then it will help to dampen US dollar strength in the coming months. However, the US dollar is still likely to remain strong as overseas central banks continue to ease monetary policy resulting in a relative tightening of Fed policy.”
“Delaying Fed rate hikes should also help to increase the likelihood that the US economy outperforms again this year supporting a stronger US dollar as well.”
“The risk that the US dollar could “appreciate further” was noted by a “few FOMC participants” in the latest minutes. “The increase in the foreign exchange value of the US dollar was expected to be a persistent source of restraint on US net exports”.”
Key Quotes
“The Fed have signalled that they intend to begin raising rates from the middle of this year but the risks are clearly that they may wait a little longer. As a result, the market has moved to push back the timing of the first expected Fed rate hike until the end of this year.”
“The probability of the Fed dropping their “patient” signal at their upcoming FOMC meeting on the 18th March has declined thereby reducing the likelihood of a rate hike as early as at their 17th June FOMC meeting.”
“However, it is also important to consider as well that FOMC participants will subsequently have been reassured by the stellar non-farm payrolls report for January which should have made them more comfortable to begin raising rates.”
“Market attention will now even more closely scrutinize the upcoming semi-annual testimony from Fed Chair Yellen on the 24th February for a more timely update on the Fed’s policy thinking.”
“If the first Fed rate hike is delayed beyond the middle of this year, then it will help to dampen US dollar strength in the coming months. However, the US dollar is still likely to remain strong as overseas central banks continue to ease monetary policy resulting in a relative tightening of Fed policy.”
“Delaying Fed rate hikes should also help to increase the likelihood that the US economy outperforms again this year supporting a stronger US dollar as well.”
“The risk that the US dollar could “appreciate further” was noted by a “few FOMC participants” in the latest minutes. “The increase in the foreign exchange value of the US dollar was expected to be a persistent source of restraint on US net exports”.”