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USD strength could prevent Fed from hiking rates for a bit longer - RBS

FXStreet (Łódź) - Greg Gibbs, FX Trading Strategist at RBS remarks that the dollar's recent strength suggests any policy tightening by the Fed could bring about a strong market reaction.

Key quotes

"The USD has probably moved a little faster and harder than many had expected, and ahead of clear indications from the Fed that it is closer to raising interest rates."

"This broad strength in the USD may ultimately be a factor that delays rate hikes in the US for a bit longer."

"However, the relative strength of the US economy may now be sucking in more capital from global markets seeking a balance between risk and yield."

"This is likely to contribute to relatively easier monetary conditions in the US over the medium term and somewhat tighter conditions in EM countries and help sustain a US recovery despite a stronger USD."

"As such, the Fed will continue on a path towards a measured and gradual policy tightening via a combination of a stronger USD and higher US rates."

"This does not necessarily turn the global markets into a wasteland of global risk aversion as US monetary easing will only gradually be withdrawn and easy monetary conditions will prevail outside of the US. But we are likely to remain in a broadly rising USD environment."

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