28 Apr 2015
Fed lift-off only fully priced out of Dec’15 - RBS
FXStreet (Bali) - Fed lift-off is still only fully priced out of Dec’15, notes the Global FX Strategy Team at RBS.
Key Quotes
"However, the forward expectations curve was shifted down by ~2bp following last week’s soft Durable Goods print. At this juncture, markets are pricing in 12% chance for a June’15 rate hike. The probability of a Sep’15 lift-off is now down at 56%, from 64% last week. There is potentially too little priced in for hikes in June and/or Sep’15. In addition, all the Eurodollar futures packs (red, green, blue and gold) are at the year’s yield lows."
"We have key data releases the next fortnight (including Q1 GDP, PCE, ISMs, ADPs and the ECI), which are likely to trigger significant revisions to hike expectations. In our view, FX markets will see the most adjustment (Dollar weaker) with more signs of data weakness. Front-end US rates stand to adjust the most (sell-off) in the event of strong data."
Key Quotes
"However, the forward expectations curve was shifted down by ~2bp following last week’s soft Durable Goods print. At this juncture, markets are pricing in 12% chance for a June’15 rate hike. The probability of a Sep’15 lift-off is now down at 56%, from 64% last week. There is potentially too little priced in for hikes in June and/or Sep’15. In addition, all the Eurodollar futures packs (red, green, blue and gold) are at the year’s yield lows."
"We have key data releases the next fortnight (including Q1 GDP, PCE, ISMs, ADPs and the ECI), which are likely to trigger significant revisions to hike expectations. In our view, FX markets will see the most adjustment (Dollar weaker) with more signs of data weakness. Front-end US rates stand to adjust the most (sell-off) in the event of strong data."