The Fed sounded sanguine about the deterioration in the economic situation and this helped the dollar advance. Does this imply a rate hike in June? Here are various opinions:
Here is their view, courtesy of eFXnews:
May FOMC: Keeping The Door ‘Wide Open’ To A June Rate Hike – CIBC
CIBC Research comments on today’s FOMC statement noticing that Federal Reserve officials saw no reason to tap on the brakes at this meeting.
“Their unanimous decision to keep rates on hold reflected broad agreement among policymakers who have held somewhat divergent views recently. The statement, however, did state that the slowing in growth over the first quarter appears to be transitory, and that the fundamentals underpinning healthy growth in consumption remain in place,” CIBC adds.
Overall, CIBC argues that the statement language appears to keep the door wide open to a June rate hike, if the data cooperates.
For lots more FX trades from major banks, sign up to eFXplus
By signing up to eFXplus via the link above, you are directly supporting Forex Crunch.
May FOMC: ‘Extremely Important’ Outcome; Fed To Hike In June – Barclays
Barclays Capital Research comments on today’s FOMC statement arguing that the meeting’s outcome is ‘extremely important’ as it gives a signal for a higher chance for a June’s hike.
“Again, the Fed did not surprise by raising interest rates or shrinking its $4trn dollar balance sheet. But it did something just as important in the face of weak data, the Committee signaled that it would maintain its normalization path this year,” Barclays notes.
Moreover, Barclays notes that the statement lacked any tone of uncertainty over the state of the economy or hesitation over the path of policy.
“Given the tone of the statement, we believe the bar for inaction in June is high. To derail June, the economy would need to provide proof of fundamental weakness to the FOMC, ” Barclays adds.
In line with this view, Barclays maintains its call for rate hikes in June and September and expects the committee to begin balance sheet normalization in December.
May FOMC: No Strong Signal In Either Direction; Eyes On NFP – BofAML
Bank of America Merrill Lynch Research comments on today’s FOMC statment noticing that the FOMC did not send a strong signal in either direction regarding the future path of hikes.
“At this point, it seems that the consensus on the FOMC is to look past some of the recent weak data, which includes 1Q GDP, March CPI and payrolls,” BofAML adds.
In that regard, BofAML suspects that Fed officials will be particularly keen to see the April data and all eyes will be on Friday‘s employment report and next Friday‘s CPI and retail sales reports.
“Strong readings on these indicators will likely leave the Fed feeling more comfortable with delivering a hike at the June meeting,” BoffML argues.
BofAML expects nonfarm payrolls to increase by 170,000 in April, a solid rebound back to trend after a sharp slowdown in March.
May FOMC: Our Fed Call Subject To Change To June; Eyes On NFP, Fed Speeches – SEB
SEB Research comments on today’s FOMC statement noticing that the wording that slowing growth in the first quarter was “likely” to be transitory is slightly hawkish.
Against this backdrop, SEB is sticking to its forecasts of a September hike but puts it subject to change to June pending the US jobs report and Fed speeches on Friday.
“On Friday nonfarm payrolls for April are released and there six scheduled Fed speeches. As long as we avoid another weak employment gain and the speeches do not indicate that the Fed is unhappy with the current market pricing we expect to change our forecast to a June hike on May 9,” SEB clarifies.
May FOMC: ‘It’s All About The Data Now’ – ANZ
ANZ Research comments on today’s FOMC statement noticing that markets took the statement in their stride as it provided no reason to re-price expectations for a June rate rise.
“If anything, the undertone from the statement is that the FOMC is confident in the economic outlook, which must therefore indicated a reasonable degree of conviction in the published dot plots for the fed funds rate, which imply two more hikes this year,” ANZ adds.
As such, ANZ thinks that ‘it’s ‘all about the data now’ for markets to fully reprice a June hike.
“Non-farm payrolls on Friday are expected to have risen by 190k, rebounding from the weather-driven dip last month. Once payrolls is out of the way, Fed speakers will have their chance to sway market pricing – six of them speak on Friday alone,” ANZ adds.
May FOMC: More ‘Skeptical’ On June Hike Than Consensus; Where To Target EUR/USD? – Danske
Danske Bank Research comments on today’s FOMC statement arguing that they are not in line with the consensus view which has shifted towards a hike at the June meeting.
“We are more skeptical, because of the weaker economic data as well as still too low inflation in the US and the Fed’s desire to begin reducing the balance sheet soon, which we call ‘quantitative tightening’ (QT). We think the Fed wants to send up a trial balloon in June by announcing what conditions would trigger a change in its current reinvestment strategy in order to avoid a new round of ‘taper tantrum,” Danske argues.
As such, Danske still expects the Fed to hike in July and December.
On the FX impact, Dnakse notes EUR/USD edged slightly lower and below the 1.09 level on the somewhat dull FOMC statement, which notably did not include any new hints on ‘quantitative tightening’.
“For EUR/USD, focus in the coming months will be on both Fed and the ECB adopting slightly less accommodative stances. We still look for the cross to stick – by and large – to the 1.06-1.10 range in 1-3-month,” Danske projects.
For lots more FX trades from major banks, sign up to eFXplus
By signing up to eFXplus via the link above, you are directly supporting Forex Crunch.
Share
