17 Mar 2015
FOMC Meeting: View on ‘Patient’ and ‘USD appreciation’ key for USD – ING
FXStreet (Barcelona) - Rob Carnell of ING, comments on the two important factors to be watched in the FOMC statement – the Fed’s view on ‘patient’ and USD appreciation, and further mentions that any references to USD strength will put the dollar under pressure.
Key Quotes
“There are two key things to watch for in the forthcoming FOMC statement. The first is the reference to the word “patient”. Recent labour market data improvements, including a trend increase in non-farm payrolls and further falls in the unemployment rate have raised the probability that the Fed will drop the reference to this word in its statement, indicating that rates could be raised at any following meeting.”
“We still think that “patient” is dropped at this meeting and that the Fed will hike rates in June by 25bp, taking the range from 0-25bp to 25-50bp. But recent activity data have made this look a far less convincing call.”
“One other factor is the rapid appreciation of the USD, especially against the EUR, though in truth, this is more about EUR weakness than about USD strength. The trend in the US trade balance has been fairly stable through 2014/2015, with monthly trade balances between -US$45bn and -US$40bn.”
“There is no new trade data before the next FOMC meeting, but the Fed could include a reference to the USD in its statement, something along the lines of, “…This assessment will take into account a wide range of information, including …inflation expectations, and readings on financial and international developments including exchange rate developments” (suggested addition to January FOMC text in bold). This may be one way to temper the tendency of the USD to appreciate still further in response to any adjustment to the word “patient”.”
“All things considered however, only maintenance of the word “patient” in addition to references to the USD strength are likely to put the USD under weakening pressure, with most combinations of outcomes likely to provide further impetus to the current USD strengthening trend.”
Key Quotes
“There are two key things to watch for in the forthcoming FOMC statement. The first is the reference to the word “patient”. Recent labour market data improvements, including a trend increase in non-farm payrolls and further falls in the unemployment rate have raised the probability that the Fed will drop the reference to this word in its statement, indicating that rates could be raised at any following meeting.”
“We still think that “patient” is dropped at this meeting and that the Fed will hike rates in June by 25bp, taking the range from 0-25bp to 25-50bp. But recent activity data have made this look a far less convincing call.”
“One other factor is the rapid appreciation of the USD, especially against the EUR, though in truth, this is more about EUR weakness than about USD strength. The trend in the US trade balance has been fairly stable through 2014/2015, with monthly trade balances between -US$45bn and -US$40bn.”
“There is no new trade data before the next FOMC meeting, but the Fed could include a reference to the USD in its statement, something along the lines of, “…This assessment will take into account a wide range of information, including …inflation expectations, and readings on financial and international developments including exchange rate developments” (suggested addition to January FOMC text in bold). This may be one way to temper the tendency of the USD to appreciate still further in response to any adjustment to the word “patient”.”
“All things considered however, only maintenance of the word “patient” in addition to references to the USD strength are likely to put the USD under weakening pressure, with most combinations of outcomes likely to provide further impetus to the current USD strengthening trend.”