USD: Fed To Skip Hiking This Week But Will Announce

The wide consensus this week is that the Federal Reserve will raise rates despite the economic slowdown. The team at Danske stands out with a different view:

Here is their view, courtesy of eFXnews:

Danske Bank Strategy Research  sticks to its  view that the Fed will skip hiking at the upcoming meeting and instead announce the triggers for quantitative tightening (QT).

“A data-dependent Fed should wait at least one meeting to confirm that recent weakness is only temporary. However, given the high expectations of a June hike, the Fed may have painted itself into a corner, as high expectations have weighed on the Fed’s decision before.

If the Fed hikes in June, we do not expect an announcement on QT. Instead, we expect it to be postponed until the September meeting. We still think the third hike is most likely in December.

We expect unchanged ‘dots’ signalling three hikes per year and see limited chance of a hawkish surprise,” Danske adds.

On the USD front,  Danske argues that if the Fed presents something along those lines, the USD could see a boost on the back of the start of an unwarranted tightening of USD liquidity over the coming 3-12M depending on the timing of the start of the reduction.

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