Wednesday, September 16, 2015

FOMC: Hawkish hold on cards for the US central bank – Deutsche Bank

FXStreet (Delhi) – Alan Ruskin, Macro strategist at Deutsche Bank, suggests that all the market chatter has centered on a ‘hawkish hold’ - a cute way of saying the Fed won’t hike in September, but will leave the door wide open for a rate hike at the October meeting, most likely by emphasizing they are capable of calling a press conference after any FOMC meeting at very short notice.

Key Quotes

“There is no such thing as a ‘dovish hike‘– a surprise hike would be a huge (hawkish) change in Fed regime, showing the Yellen Fed is no longer willing to ‘baby-sit’ long risk exposure.”

“A ‘dovish hold’ is more likely than a ‘dovish and hawkish hike’ combined. The probability of this is not all that low. The Fed could well feel they can signal something about October closer to the October meeting.”

“A ‘hawkish hold’ reaction: We will know about the hold part immediately with the first headlines, and that should be helpful for risk and a small negative for the USD, given there is still a modest (~20% probability) of a 25bp hike priced in for this meeting.”

“A ‘dovish hike’ and a ‘hawkish hike’ reaction should very quickly turn into close to the same thing: a rout of risk appetite that is very USD positive.”

“A ‘dovish hold’ that does not overt make October ‘live’. This will temporarily give risk parameters a nice lift, and further aid the selective positioning squeeze we have seen in some currencies notably AUD and ZAR. However beware, this trade probably has only a few weeks window.”
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