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Fed fund futures: Odds of March 2016 rate hike at 'coin flip' level

FXStreet (Bali) - While there are still comments from certain hawkish Fed officials, which may still misleadingly keep the hopes of a Fed rate hike in 2015 alive, market participants have, since the last disappointing Oct US NFP report, made their verdict.

Fed fund futures show growing pessimism on rate hikes

Based on CME Group 30-Day Fed Fund futures prices, a tool used to express the market’s views on the likelihood of changes in U.S. monetary policy, the probability of a March 2016 rate hike currently stands at 50%, down from 54% pre-US retail sales data on Wednesday, which saw, yet again, another downbeat number, adding to the collection of negative US fundamentals from recent weeks (of high impact, we saw dovish FOMC minutes, US NFP, PMIs, pending home sales).

USD longs run for the exit

As the market keeps pricing out chances of interest rate hikes by the Federal Reserve, the US Dollar should remain heavy across the board as perma USD bulls unwind long positions amid evidence of low rates for longer in the US. Worth mentioning that since the USD has enjoyed a multi-month bullish cycle, should the market lose further confidence on the ability of the US to set higher rates, there might still be some major bearish USD moves to be seen. Supporting the fundamental justification of lower rates for longer in the US, a research piece from SF fed gained some traction on Wednesday, concluding that on current financial conditions, the natural rate in the US is -2.1%. See research paper.

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