In focus for this week still remains the USD, off the back of another hawkish rate hike from the FED. Our thoughts and feelings remain the same as stated in last week’s market forecast (of which our trade desk was positioned perfectly for the FOMC meeting).
This week, all eyes will be on the US CPI report this week. However, US midterms elections will be held this week and are unlikely to be a market mover, as a divided government, with no real meaningful changes in fiscal or macro policy, shouldn’t be a driver for the dollar. In the low likelihood that a potential fiscal expansion funded through a tax hike is announced, would likely support a higher USD. However, it is not currently priced into markets. At Wednesday’s FOMC meeting, the FED seemed to offer some kind of re-hawkish tone, as the market was sceptical amid other major global central banks, indicating data dependence with few slowing down the pace of hikes, and/or hinting at the possibility. However, the FED put these concerns to bed after another 75 Basis point rate hike.
We are expecting another 50 BP rate hike at the December meeting but are cautious that another 75BP hike is still on the table, but we await the CPI release this week to aid towards this view. We expect core CPI to rise 0.4% m/m and 6.4% y/y. Therefore, this implies that the dollar has a limited downside in the near term as uncertainty remains high and those risks in some components remain to the upside.
We wish you all a safe trading week.
Kind Regards,
LTI.