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US Dollar May Rise as Hawkish Fed Comments Boosts Rate Hike Bets

US Dollar May Rise as Hawkish Fed Comments Boosts Rate Hike Bets

Ilya Spivak,

Talking Points:

  • Yields-sensitive Kiwi and Canadian Dollars, Yen fall as US rates advance
  • Hawkish Fed commentary may feed rate hike speculation, boost US Dollar
  • British Pound down after BOE’s Shafik says more easing probably needed

The New Zealand Dollar underperformed in overnight trade. The move tracked a decline in benchmark US Treasury bond futures, hinting that resurfacing Fed rate hike speculation may be applying outsized pressure to the yield-sensitive currency. Indeed, the Kiwi offers the highest carry in the G10 FX space, linking its fortunes in a significant way to relative rate spreads. The Canadian Dollar(another relative high-yielder) and the Japanese Yen (a rates-sensitive unit from the other end of the spectrum) followed the Kiwi lower.

Rising US yields may reflect follow-on momentum from supportive economic data as well as pre-positioning for a busy round of Fed-speak. Markit PMI data showed stronger service-sector growth than economists projected while consumer confidence unexpectedly jumped to the highest since 2007. Remarks from Chair Yellenandfour regional branch Presidents (Bullard, Evans, Mester and George) are now on tap.A hawkish tone echoing Yellen’s near-promise of a December rate hike may boost the US Dollar.

The British Pound declined as BOE Deputy Governor Shafik said Brexit is a sizable shock for the UK economy and predicted that more easing will likely be needed. Perhaps most worryingly, she added that the central bank is uncertain about the economic impact and the side-effects of QE, echoing recent concerns about policymakers’ competence amid ever-more unconventional policy (especially in Japan).

Losing money trading in the FX market? This might be why.

Asia Session

01:45CNYWestpac-MNI Consumer Sentiment (SEP)115.2-111.5
05:00JPYSmall Business Confidence (SEP)47.746.946.3

European Session

06:00EURGerman GfK Consumer Confidence (OCT)10.0 (A)10.2Low
06:00CHFUBS Consumption Indicator (AUG)1.53 (A)1.45Low
06:30EURECB's Hansson Speaks Eurozone Outlook--Low
08:05GBPBOE’s Shafik Speaks at Bloomberg Conf.--Low
09:00EURECB’s Draghi Addresses Research Conf.--Medium
13:30EURECB’s Draghi Speaks in Berlin--Medium
13:50GBPBOE Bond-Buying Operation Results--Medium
15:30EURECB’s Villeroy Speaks in Brussels--Low

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.