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USD: More Fed speakers signal clear shift towards lift-off - MUFG

FXStreet (Delhi) – Derek Halpenny, European Head of GMR at MUFG, notes that currently the 2016 Dec fed funds future is pricing in less than two rate increases throughout 2016, assuming the Fed acts in December.

Key Quotes

“Boston Fed President Rosengren has become the latest Fed official to endorse a rate increase at the meeting in December. Rosengren is not a voter at the final meeting of 2015 but importantly will be a voter in 2016. His endorsement means that the most dovish incoming 2016 voter will have been supportive of lift-off that gives the President voting composition for 2016 a notable hawkish slant.”

“The other 2016 voting Fed Presidents are Bullard, George and Mester – all clear hawks and more hawkish in combination than the four outgoing voting Fed Presidents of 2015 (Lacker, Lockhart, Williams and Evans). The market is not yet really focusing on the pricing of 2016 rate hikes but the composition of incoming Presidents will no doubt at some point prompt a move higher in 2016 rate hike expectations..”

“A lot has been said in recent days about the prospect of the dollar derailing the Fed in its plans to raise the federal funds rate. However, from an inflation perspective it is the annual change in the value of the dollar that is important and the base effect over the coming months means that annual increase is set to unwind notably. From mid-October 2014 through to March this year, the DXY index surged by nearly 18% - the strength of the dollar is more likely to diminish as an impact relative to a year earlier over the coming months.”

Euro: More selling pressure coming – Investec

Research Team at Investec, notes that the Reuters news service released an article claiming ECB members were forming a consensus ahead of their December meeting to cut deposit rates further into negative territory - this despite Dr Draghi's claims last year that at -0.2%, the ECB had reached its lower bound.
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GBP: Fiscal consolidation is the near-term threat to sterling – NAB/BNZ

Research Team at NAB/BNZ, notes that as the Chancellor’s Autumn Statement on 25 November now comes on to the near-term radar, we’d expect fiscal consolidation to dominate the news headlines and the foreign exchange markets may be less sanguine and we look for a lower GBP.
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