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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, Head Strategist, APAC

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

GMT

CCY

EVENT

ACT

EXP

PREV

01:45

CNY

Westpac-MNI Consumer Sentiment (SEP)

115.2

-

111.5

05:00

JPY

Small Business Confidence (SEP)

47.7

46.9

46.3

European Session

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

06:00

EUR

German GfK Consumer Confidence (OCT)

10.0 (A)

10.2

Low

06:00

CHF

UBS Consumption Indicator (AUG)

1.53 (A)

1.45

Low

06:30

EUR

ECB's Hansson Speaks Eurozone Outlook

-

-

Low

08:05

GBP

BOE’s Shafik Speaks at Bloomberg Conf.

-

-

Low

09:00

EUR

ECB’s Draghi Addresses Research Conf.

-

-

Medium

13:30

EUR

ECB’s Draghi Speaks in Berlin

-

-

Medium

13:50

GBP

BOE Bond-Buying Operation Results

-

-

Medium

15:30

EUR

ECB’s Villeroy Speaks in Brussels

-

-

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.1086

1.1154

1.1184

1.1222

1.1252

1.129

1.1358

GBP/USD

1.2817

1.2906

1.2965

1.2995

1.3054

1.3084

1.3173

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

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

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