skip to main content
Close Icon We use cookies to improve your website experience.  To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy.  By continuing to use the website, you consent to our use of cookies.
Global Search Configuration

It's FOMC day and the market is already on the sidelines.

  • A 25bps rate hike is fully priced in by the market (even though we would highlight our prev outlier warning), but that's not the focus.

Instead, everyone is watching the updated dot plots and whether the median dot for 2017 is marked down.

  • On balance, we would not expect most to mark down their rate projections at this stage (which would probably mean an unchanged median) but there is an outlier risk that the Fed core (Yellen, Fischer, Dudley, Brainard) may well lower theirs.
  • Note in the Mar plot, there were 3 officials who projected less than 3 hikes for 2017.

Even if the median 2017 dot is left at 3, the question one needs to ask is whether the market will react with outright scepticism?

  • We think so.
  • Note that the market has been pricing out the odds of a 3rd Fed hike this yr and we suspect this will continue ahead amidst sluggish inflationary pressures, concerns of a more subdued US econ bounce and a Fed core narrative that is starting to tilt a little dovish.
  • The other thing to note is that if there are a few more Fed members who lower their rate projections, the market will take it as a strengthening signal that Fed tightening conviction is ebbing which will have a big bearing on trade psyche.

We refer back to our 07 Jun viewpoint and 05 Jun viewpoint where we talked about how we expect a more subdued US econ rebound given the lack of traction in wage growth/consumer spending/biz investments.

Note that we have long been sceptical of the Trump effect, and the enduring failure to push through on fiscal/tax policies is a fundamental negative.

  • On this point, we are also of the view that the divergence btwn soft/hard data will narrow further, which ultimately leaves us holding our long-held view of a 2 hike cycle for 2017.

Implicitly, we suspect the market will sell the USD and buy USTs post-FOMC.

  • For the USD Index, beyond any knee-jerk FOMC pop, we are eyeing ultimately eyeing a downside probe of 96.46 and 95.89. Currently around 97.00. Resistance at 97.14 and 97.46.
  • For USTs, our long-held view has been to buy the belly on dips, positioning for any shifts in Fed tonality. JH

Recommended Articles

  • IGM Credit, IGM FX and Rates

    IGM Launches Daily Quant-Based Trading Ideas with IGM G10 FX Playbook

    21 Jan 2021

    Boston, MA – (January 21, 2021) – IGM, a subsidiary of Informa plc (LSE: INF), a leading provider of solutions for financial services professionals, has launched the IGM G10 FX Playbook, offering financial institutions actionable analysis and talking points for client and in-house currency market trading strategy.

    Topics Industry News

  • IGM FX and Rates

    2020: That was the year that was - U.S. High grade primary markets

    22 Dec 2020

    2020 will be known for the Great Debt Binge when corporate America and a host of foreign companies raised an unprecedented amount of capital via the USD public debt market amidst the worst pandemic crisis in over a century...

    Topics Industry News

  • IGM FX and Rates

    2020 Year in Review

    By Jonathan Cavenagh 22 Dec 2020

    The positive risk bias at the start of 2020 for EM Asia assets didn’t last long. The synchronised global economic upswing quickly unravelled as the COVID pandemic swept through EM Asia economies. The epicentre of the pandemic was in China to begin with and as China went into lockdown Q1 was a write off for economic growth in the region. From a peak in mid-January to late March, the ADXY currency index lost 5%. There were significant divergences within the region though, with the IDR losing close to 15% against the USD, the baht 8.6% and INR 5.5%. IDR and INR are typically current account deficit currencies and sensitive to broader risk appetite, whilst the collapse in tourism inflows weighed heavily on the baht. In contrast, the PHP was basically flat against the USD in Q1, while the TWD only lost 0.67%. The Philippines has fairly limited offshore investor positioning, which served it well, while Taiwan managed the pandemic very well and this was reflected in relative currency outperformance…

    Topics Industry News

;

Any questions? Speak to a specialist

Would you like to request sample data or analysis from Informa Financial Intelligence? 

See how our tailored solutions can help you gain a competitive advantage: