US Dollar Looks to Fed Commentary to Inform 2015 Rate Hike Chances

Talking Points:

• US Dollar Looks to Fed Commentary to Inform 2015 Rate Hike Speculation
• Yen Rose on Haven Flows as Japanese Shares Declined in Overnight Trade
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The US Dollar corrected lower in overnight trade after spiking to the highest level in over five months last week. The Japanese Yen advanced as the benchmark Nikkei 225 stock index declined, driving demand for the safety-linked currency.

From here, a quiet economic calendar in European trading hours will put Fed-speak back in the spotlight. Comments from Bill Dudley, John Williams and Charles Evans – Presidents of the New York, San Francisco and Chicago branches of the Federal Reserve, respectively – are due to cross the wires.

Thus far, the message from Fed officials since the September policy meeting has been broadly hawkish. Indeed, current and soon-to-be voters on the FOMC committee including Chair Janet Yellen made a case for “lift-off” in 2015 last week.

More of the same seems like from Messrs Dudley and Williams, who tend to fall near the middle of the FOMC bias spectrum and broadly match Ms Yellen’s views. Remarks from Mr Evans may prove particularly interesting however considering his firm support for the dovish side of the argument. It would mean far more for him to sound off in favor of a 2015 rate hike than many of his counterparts.

The greenback is likely to rise if the sum total of upcoming commentary bolsters the likelihood of a rate hike at the October or December FOMC meetings in the minds of investors. The implications for broader sentiment trends are less clear however.

At various times in recent days, the prospect of a nearing Fed hike seemed to boost sentiment because of what such a move would say about the health of the US economy. At other times however, on-coming tightening spooked investors worried about the implications of slowing US growth at a time when the Eurozone remains sluggish and China continues to slow.

Which side will win out this time shall be interesting to see. Indeed, with so much Fed-speak on tap on a single day, the end result for risk appetite may ultimately emerge as a sort of pace-setter for the week ahead.

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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