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20 Apr 2015
Fed rate hike expectations pushed further back – SG
FXStreet (Barcelona) - Kit Juckes of Societe Generale, views that the dollar is now tracking US rate expectations closely, and the recent weak data has lead to a shift in rate hike expectations.
Key Quotes
“Fed rate hike expectations are being pushed further back as economic data disappoint and growth expectations are eroded.”
“The world where the US economy is strong enough for team Janet to have raised rates feels about as real as the pot of gold at the end of the rainbow. Whenever we think we're getting closer to the magic day, it moves further way....December Fed Funds futures reached a new high on Friday and don't price 1% Fed Funds until 2017.”
“Whereas in Q4 and through Jan/Feb, the driver of EUR/USD was the ECB more than the Fed, over the last month, the dollar has tracked US rates, with the 1year rate, two years forwards, mirroring currency moves. That rate is now at 1.6%, back down to the levels seen after the US labour market data at the start of the month, and this in turn, takes the dollar back close to the levels we saw then.”
“With a very quiet week ahead for economic data, we can either try and get excited by US home sales figures at the back end of the week, or watch events elsewhere, or just wait for the April ISM and labour market reports. If the April data calendar shows sign of strength, that will encourage all those who believe that the recent weakness is temporary, and given how little is priced into the rates market, we should see a flatter Treasury curve and a stronger dollar.”
Key Quotes
“Fed rate hike expectations are being pushed further back as economic data disappoint and growth expectations are eroded.”
“The world where the US economy is strong enough for team Janet to have raised rates feels about as real as the pot of gold at the end of the rainbow. Whenever we think we're getting closer to the magic day, it moves further way....December Fed Funds futures reached a new high on Friday and don't price 1% Fed Funds until 2017.”
“Whereas in Q4 and through Jan/Feb, the driver of EUR/USD was the ECB more than the Fed, over the last month, the dollar has tracked US rates, with the 1year rate, two years forwards, mirroring currency moves. That rate is now at 1.6%, back down to the levels seen after the US labour market data at the start of the month, and this in turn, takes the dollar back close to the levels we saw then.”
“With a very quiet week ahead for economic data, we can either try and get excited by US home sales figures at the back end of the week, or watch events elsewhere, or just wait for the April ISM and labour market reports. If the April data calendar shows sign of strength, that will encourage all those who believe that the recent weakness is temporary, and given how little is priced into the rates market, we should see a flatter Treasury curve and a stronger dollar.”