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USD supported by prospects of hawkish Fed - Scotiabank

FXStreet (Córdoba) - Camilla Sutton, analyst at Scotiabank, notes that the Federal Reserve is expected to make a hawkish shift next week, which is supporting the USD.

Key Quotes

"The upcoming September 17th Fed meeting and building expectations that the Fed will make a hawkish shift is supporting a broad strengthening in the USD".

"The Fed's forward guidance (that interest rates will be on hold for a considerable time after the asset purchase program ends) is expected to be changed; likely to a line that ties the expected path of interest rates to developments on inflation, employment and financial market conditions".

"This shift would highlight an increasingly hawkish Fed and likely support the USD further, particularly against currencies whose monetary policy is diverging from the U.S., including JPY and EUR".

"For currencies like CAD the impact of a more hawkish Fed is more complicated. Currently, the Fed Funds market is pricing in the first interest rate hike in July 2015; with a second in October 2015 and closing 2016 with rates at 1.75%. As the San Francisco Fed paper suggests this is slightly less aggressive than what the June FOMC SEP suggested, putting increased pressure on these forecasts as well".

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