Central Bank Weekly: US Dollar Gains as FOMC Minutes Point to More Hikes

Talking Points:

June Fed rate travel contingency up to 88%, and contingency for 4 hikes in 2018 are above 35%.

The US Dollar has benefited from a recover of a Mar FOMC assembly minutes, that suggested that process officials see a larger risk of an acceleration overshoot, definition a faster rate travel trail is possible.

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The US Dollar has firmed adult fast in a second half of a week interjection mostly due to a recover of a Mar FOMC mins yesterday. The minutes, that minute a process assembly that yielded a 25-bps rate hike, an upgraded mercantile outlook, and a some-more hawkish ‘dot plot,’ carried a transparent message: there are risks to a upside for both acceleration and growth, so markets should be prepared for a solid diet of rate hikes relocating forward.

While Fed rate expectations were dampened entrance out of a unsatisfactory Mar US Nonfarm Payrolls news final Friday, they have fast rebounded after a Mar FOMC minutes. At a start of this week, a pragmatic luck of a Jun travel were down to 78%; they are now 89%. Similarly, contingency of saying 4 hikes this year have increasing from 23% to 37% in new days.

Table 1: Fed Funds Rate Hike Expectations (April 12, 2018)

Central Bank Weekly: US Dollar Gains as FOMC Minutes Point to More Hikes

Even yet a US Dollar has been trade eccentric of rate travel expectations shifts given a commencement of Mar – mostly due to a overhang of mercantile doubt in a form of ongoing trade disputes among NAFTA members and between China and a US – a uptick in rate expectations has proven to be a undoubted certain for a US Dollar once more.

But given a poignant grade to that a Jun travel is labelled in, and now that contingency of a third travel this year in Sep have crossed a pivotal 60% threshold, it would reason that a pivotal pricing to watch for would be a Dec travel odds.

Price Chart 1: DXY Index Daily Timeframe (September 2017 to Apr 2018)

Central Bank Weekly: US Dollar Gains as FOMC Minutes Point to More Hikes

Even yet a DXY Index is no longer trade within a downtrend from a Dec 2017 and Jan 2018 pitch highs, it continues to coquette with a downtrend given Mar 1. Ultimately, price still stays next 91.01, a 2017 low set on Sep 8 (which subsequently noted a morning doji star candle cluster disaster in mid-January as good as a Mar 1 pivotal reversal).

Similarly, given that trade is not usually a duty of cost though also of time, a DXY Index would need to contend with a forward trendline from a Nov and Dec 2017 highs once it reached 91.01 before a critical try during a low could be called. Increasing Dec rate travel contingency are assisting a greenback stabilize, however.

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— Written by Christopher Vecchio, CFA, Senior Currency Strategist

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