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31 Jul 2014
A more hawkish Fed prompts an earlier rate hike? – Danske Bank
FXStreet (Edinburgh) - The hawkish tone from the FOMC in yesterday’s meeting could open the door to an earlier-than-expected rate hike in the US, suggested Arne Rasmussen, Chief Analyst at Danske Bank.
Key Quotes
“In the statement from the FOMC meeting yesterday the Fed made a shift towards a more hawkish stance by changing the language on both the labour market and inflation in a slightly more positive direction - we now see the first hike in April 2015, 30 July”.
“The risk is now that future Fed hikes will come earlier and less gradual than what is implied by the current Fed projections and not least by market pricing. The first rate hike is now priced approximately in one year’s time”.
“Given the change in rhetoric, we now expect the Fed to hike rates in April 2015 rather than mid-2015”.
“As unemployment continues to fall and inflation increases we believe the rise in short end yields is likely to continue as the market starts to price in earlier rate hikes”.
“Higher US rates are also expected to support a further decline in EUR/USD as EUR short rates are still expected to be kept very low for the foreseeable future by the ECB”.
“The more upbeat rhetoric from the Fed came on top of strong US GDP numbers earlier in the day. US GDP rose 4.0% q/q annualised in Q2, well above market expectations, and also noteworthy, the weak Q1 numbers were revised in a positive direction”.
“Especially, we note that the engine of the US economy – goods consumption -rose on average 3.6% q/q annualised in H1”.
Key Quotes
“In the statement from the FOMC meeting yesterday the Fed made a shift towards a more hawkish stance by changing the language on both the labour market and inflation in a slightly more positive direction - we now see the first hike in April 2015, 30 July”.
“The risk is now that future Fed hikes will come earlier and less gradual than what is implied by the current Fed projections and not least by market pricing. The first rate hike is now priced approximately in one year’s time”.
“Given the change in rhetoric, we now expect the Fed to hike rates in April 2015 rather than mid-2015”.
“As unemployment continues to fall and inflation increases we believe the rise in short end yields is likely to continue as the market starts to price in earlier rate hikes”.
“Higher US rates are also expected to support a further decline in EUR/USD as EUR short rates are still expected to be kept very low for the foreseeable future by the ECB”.
“The more upbeat rhetoric from the Fed came on top of strong US GDP numbers earlier in the day. US GDP rose 4.0% q/q annualised in Q2, well above market expectations, and also noteworthy, the weak Q1 numbers were revised in a positive direction”.
“Especially, we note that the engine of the US economy – goods consumption -rose on average 3.6% q/q annualised in H1”.