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28 Jan 2015
USD might soften if Fed extends its patience on policy – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, is of the opinion that USD could soften if Fed decides to main ‘patience’ in policy moves, but suggests that any USD dips will likely be a buy.
Key Quotes
“Since the end of last year, money market rates suggest that investors have become less confident about the prospects of a mid 2015 FOMC rate hike.”
“Fed hawks will argue that the extremely low level of interest rates across the curve is extremely unusual in an environment in which the labour market is tightening at its current pace. However, disinflation has taken a grip and is very evident in US wage data and in various inflation measures.”
“Weak oil prices suggests that US CPI inflation is on track to drop further in the coming months and this is likely to weigh on wage setting negotiations despite the tightening in the labour market.”
“We have maintained a call for some time that the Fed is unlikely to hike interest rates until the end of this year. If the Fed signal that it is willing to extend its patience on policy moves, than the USD could soften. “
“In our view, the market consensus has been a little hasty in recent months in anticipating the pace of normalisation in Fed policy. If we are correct there is scope for some adjustment in long USD positions.”
“That said, the US economy will remains far closer to reaching normalisation in its economy that either the Eurozone or Japan. Even if the Fed delays the first hike in rates a little beyond central forecast of late 2015, it is still likely to be hiking rates at a time when the BoJ and ECB are still busy expanding their balance sheets. This view supports our expectation that any USD dips are likely to be temporary.”
Key Quotes
“Since the end of last year, money market rates suggest that investors have become less confident about the prospects of a mid 2015 FOMC rate hike.”
“Fed hawks will argue that the extremely low level of interest rates across the curve is extremely unusual in an environment in which the labour market is tightening at its current pace. However, disinflation has taken a grip and is very evident in US wage data and in various inflation measures.”
“Weak oil prices suggests that US CPI inflation is on track to drop further in the coming months and this is likely to weigh on wage setting negotiations despite the tightening in the labour market.”
“We have maintained a call for some time that the Fed is unlikely to hike interest rates until the end of this year. If the Fed signal that it is willing to extend its patience on policy moves, than the USD could soften. “
“In our view, the market consensus has been a little hasty in recent months in anticipating the pace of normalisation in Fed policy. If we are correct there is scope for some adjustment in long USD positions.”
“That said, the US economy will remains far closer to reaching normalisation in its economy that either the Eurozone or Japan. Even if the Fed delays the first hike in rates a little beyond central forecast of late 2015, it is still likely to be hiking rates at a time when the BoJ and ECB are still busy expanding their balance sheets. This view supports our expectation that any USD dips are likely to be temporary.”