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US: All roads lead to US Fed next week – Westpac

FXStreet (Delhi) – Research Team at Westpac, suggests that their expectation that EUR/USD will decline to 1.05 by March 2016 relies not just on the FOMC announcing a rate hike next Wednesday but another in March.

Key Quotes

“With markets pricing around 85% chance of a 25bp increase in the federal funds rate (from 0.0-0.25% to 0.25-0.5%), a steady hand next week would perhaps only occur if, as Richard suggests on p3, the US suff ers a “zombie apocalypse.” But there remains considerable doubt over the accompanying statement, the FOMC’s quarterly forecasts and the news conference by Chair Yellen.”

“Recent USD/majors price action indicates great unease about how much benefit USD will gain from such a well-flagged rate rise. USD/JPY’s tumble below 122 is a case in point. The BoJ is still printing yen at a rapid clip as the Fed prepares to tighten policy yet USD/JPY falls. Due to the role of market expectations and positioning, USD should be volatile next week and may not gain on the FOMC headlines. But we doubt investors will decide that the Fed is “one and done” so broad USD gains should resume into 2016 as pricing for a second hike in March increases from the current 40% chance.”

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