THE FED WILL DELIVER ITS LAST HIKE, PAVING THE WAY FOR THE USD TO GLIDE LOWER THROUGH H2 – TDS

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Economists at TD Securities analyze USD outlook ahead of the Fed meeting.

Data trends should outweigh the Fed rhetoric and reinforce the pattern of USD selling

The Fed will most certainly deliver a 25 bps rate hike, which we think is the last. Even so, they will probably aim to maintain a hawkish bias, trying to validate the dots. It is the classic ‘have your cake and eat it too’ playbook. We think it will fail, leading to a weaker USD. It’s probably not the time to add bull steepners, but we also think the bear flattener regime is living on borrowed time.

For the USD, there has been a very clear ‘buy the rumor, sell the Fed,’ theme around the meeting dates since they first hiked last year. The USD has rallied in the run-up to the meeting, then declines on the day and subsequently declines. The data trends should outweigh the Fed rhetoric and reinforce this pattern of USD selling.

 


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