Dollar Jumps on Fed's Hawkish Guidance
The US Dollar has reached a two-month high after the Federal Reserve's 25bp rate increase, according to ING strategists Francesco Pesole and Frantisek Taborsky. The Fed's hawkish guidance for another hike by year-end is supporting upside risks in the near term.
Everything about yesterday's FOMC meeting was hawkish, say the strategists. The widely expected 25bp hike was accompanied by a dot plot showing strong consensus for another hike this year. Out of 18 members, 12 project one more increase and four project two more this year.
The DXY has jumped by 0.6%, reaching a two-month high after the Fed's decision. The strategists note that market pricing for October is 13bp and for December 32bp. Despite hawkish pre-meeting bets, all of that still triggered a 10-12bp jump in the two-year USD swap rate.
The pledge of monetary discipline raises the bar for a return of the debasement trade, say the strategists. Oil prices still make for a supportive external environment for the dollar. The baseline call for the coming months remains one of stabilisation around current ranges first and a softer dollar then into year-end.