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19 Mar 2015
The Fed cares about the USD - Nomura
FXStreet (Bali) - Jens Nordvig, FX Strategist at Nomura, notes that the size of the US dollar move has now reached a magnitude where it is clearly feeding into Fed policy.
Key Quotes
The Fed did not have to say it. The forecasts tell the story. The FOMC cares about the dollar. The main factor that has shifted in the outlook since the December projections is the dollar: the broad TWI was up around 7% going into the FOMC meeting while other factors have shifted much less. And we have seen interest rate projections for 2015 and 2016 come down very materially, with the median down 50bp for 2015 and between 50bp and 75bp for 2016 (although the core dots fell less).
The bottom line is that the size of the dollar move has now reached a magnitude where it is clearly feeding into Fed policy. If a 7% move on the TWI was enough to take 50bp out of the rate projection for 2015, a further 5-7% move may very well put the Fed on hold for the entire year. Hence, the size of the dollar move up to today, and the Fed’s response to it (even if implicit) has potential to put a brake on the dolla
Key Quotes
The Fed did not have to say it. The forecasts tell the story. The FOMC cares about the dollar. The main factor that has shifted in the outlook since the December projections is the dollar: the broad TWI was up around 7% going into the FOMC meeting while other factors have shifted much less. And we have seen interest rate projections for 2015 and 2016 come down very materially, with the median down 50bp for 2015 and between 50bp and 75bp for 2016 (although the core dots fell less).
The bottom line is that the size of the dollar move has now reached a magnitude where it is clearly feeding into Fed policy. If a 7% move on the TWI was enough to take 50bp out of the rate projection for 2015, a further 5-7% move may very well put the Fed on hold for the entire year. Hence, the size of the dollar move up to today, and the Fed’s response to it (even if implicit) has potential to put a brake on the dolla