Fed policy remains in focus - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that there is 30% probability priced-in of an FOMC 25bp rate hike on 21 September and a 60% chance of a hike by the 12 December policy meeting.

Key Quotes

“The most recent USA economic data, particularly the ISM reports and to some extent a softer than expected set of labour data in August do not support the case for a hike.  However, recent Fed speakers have continued to highlight the broader trends in the labor market conditions over the last year and believe the case has strengthened for a hike in recent months.

This may be contributing to some strength in the USD and higher USA yields.  However, Fed speakers have also emphasized that policy will be raised gradually and cautiously, and the overall level of interest rate rises in the current cycle is likely to be relatively shallow, sending a mixed message for the USD and USA yields.

There is considerable focus on a speech by Fed Governor Brainard scheduled for Monday.  She is seen as relatively dovish and close to Chair Yellen.  Her speech is the last on the schedule before the Fed’s self-imposed blackout period ahead of the 21 Sep FOMC.  Brainard’s inclusion on the speaker schedule was quite recent, and some are wondering if she will be used to send a signal of a readiness to deliver a hike next week.”