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    FOMC preview: A dovish message could boost USD - Lloyds Matías Salord

    Analysts from Lloyds Bank point out that market attach currently zero probability of a rate hike from the Federal Reserve next week but they warn that a less ‘dovish’ message from the FOMC has the potential to boost US bond yields and the dollar.Key Quotes:“The US Federal Reserve seems almost certain to leave its policy unchanged after its 14-15th June policy meeting. Markets currently attach effectively a zero probability to a June rate hike.”“While stopping short of emphatically signalling that interest rates will rise over the summer months we expect the message from the FOMC will be that they expect to hike rates in the near future.”“We continue to think that 21 September is the most likely date for the next rise in US interest rates.”“Given current pricing, US markets look vulnerable to further fluctuations in interest rate expectations. The slide in the US dollar and bond yields after the May payrolls report reflects the much lower probability that is now placed on any near-term policy action. If the FOMC sounds very dovish and, in particular, if the so called ‘dot plot’ shows that the majority now only expect to raise interest rates once this year, it is possible that both the currency and bond yields could continue to fall. It seems more likely, however, that the surprise will be in the other direction and that markets may be caught out by any signal that policy tightening in 2016 is still a significant possibility.” 


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