According to analysts at Morgan Stanley, this week’s upcoming speech from the US Federal Reserve’s Chariman Jerome Powell on Wednesday, while Thursday brings the latest Meeting Minutes from the FOMC, and both events could flash potential warning signs of the world’s largest central bank getting ready to begin considering slowing down their path of rate hikes going forward, a move that would expose the US Dollar to further downside.
Key quotes (via Morgan Stanley)
The recent flattening in the market pricing of the Fed hike path has captured market attention. Investors have pointed to the combination of softer CPI (as well as falling oil prices) and dovish Fed speakers as prompting this move.
Chair Powell’s speech tomorrow and the FOMC minutes on Thursday may offer new insights.
Indeed, much of the Fedspeak that has prompted the markets to price in a more dovish outlook recently was conveyed by more dovish Fed members – our economists estimate that Clarida, Harker, Kaplan, and Bostic all have below-median dots for 2019.
Therefore, should Chair Powell or the Fed minutes continue to emphasise foreign growth risks or risks of US growth slowing next year, it could suggest broader concerns among the FOMC as a whole, implying a more moderate rate hike path and, as a result, USD weakness.
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