The tide is with the Dollar – SocGen

Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes USD outlook ahead of the Fed Interest Rate Decision.

The market is likely to go on pricing a 50% chance of a further hike

Virtually no Wall Street economists expect a Fed rate hike today, but the messaging will be intended to reinforce the ‘high for longer’ theme and leave a door open for a further hike if needed.

Solid US economic data and the FOMC’s desire to send a clear message both that rates could rise again and that they won’t come down soon, supports the Dollar. Given a deliberately vague policy message, the market is likely to go on pricing a 50% chance (or so) of a further hike, and pricing of the first rate cut could be pushed further into the future.

While US data remains resilient and European/Asian data remains soft, the tide is with the Dollar. All the more so given the slow and steady grind higher in Treasury yields. I still think that high US treasury supply is pushing yields up and sucking in spare capital from around the world, supporting the Dollar. That can continue until the data changes. 

See – Fed Preview: Forecasts from 15 major banks, a pause, but the end of rate hikes?