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According to Richard Franulovich, head of FX strategy at Westpac, Chair Powell’s remark that interest rates are “just below” the range of estimates for neutral does not seem revelatory  with Fed Funds being just one hike from reaching the bottom end of the 2.5%-3.5% dot plot range.

Key Quotes

“But it is nevertheless a marked departure from his Oct 3 comments when he said, “we may go past neutral, but we’re a long way from neutral at this point, probably”. Powell’s observation that the impact of rate hikes is, “uncertain”, and that, “we will be paying very close attention to what incoming economic and financial data are telling us”, echoing Clarida’s “data dependence”, add to the caution.”

“The data continues to cool too; the 9% fall in new home sales and softer detail in the Dallas & Richmond PMIs this week add to the impression the US is downshifting after the break neck pace of 3.9% in Q2 and Q3.”

“Until the Fed sheds its more cautious tone and the data stabilise we shift to a negative week and month ahead USD bias, though maintain a bullish 3mth outlook, with the Fed likely to ultimately deliver more than what’s priced in.”