14 Dec 2015
Fed interest rate hike: Modest short-term USD positive - Danske
FXStreet (Córdoba) - According to analysts from Danske Bank, a rate hike by the Federal Reserve could boost the US dollar in the short-term but then is likely to weaken.
Key Quotes:
“Our base case has for a long time has been that the USD will strengthen into the first Fed rate hike and modestly weaken thereafter. This remains our base case.”
“We see the beginning of the Fed rate hiking cycle as a modest short-term USD positive but with the focus quickly shifting to other themes such as the sharp fall in oil prices and broader risk sentiments.”
“If the Fed decides to go for a ‘dovish hike’ with downward revisions to the dots and soft talking on the side, we think any drop in EUR/USD will prove short-lived. Continued market speculation that the ECB will have to do more given the light December easing move should also have an effect. Thus, EUR/USD could trade lower ahead of the year-end but we stress that the cross will stay in the 1.05-1.10 range in coming months.”
“We still think it is unlikely that we will reach new cycle lows and forecast the cross at 1.06 in 1-3M, within a broader trading range of 1.05-1.10. Further out, we continue to look for an uptick in the cross. While higher US rates should weigh on EUR/USD next year, all else being equal, we stress that the cross should be less exposed to this as the sensitivity to monetary policy is fading due to stretched positioning and as our longer-term valuation models suggest that fundamentals increasingly drag in the other direction.”
"Thus, we still see a strong euro recovery and the outlook for fading rate divergence fuelling a move higher in EUR/USD to 1.10 in 6M and 1.16 in 12M.”
Key Quotes:
“Our base case has for a long time has been that the USD will strengthen into the first Fed rate hike and modestly weaken thereafter. This remains our base case.”
“We see the beginning of the Fed rate hiking cycle as a modest short-term USD positive but with the focus quickly shifting to other themes such as the sharp fall in oil prices and broader risk sentiments.”
“If the Fed decides to go for a ‘dovish hike’ with downward revisions to the dots and soft talking on the side, we think any drop in EUR/USD will prove short-lived. Continued market speculation that the ECB will have to do more given the light December easing move should also have an effect. Thus, EUR/USD could trade lower ahead of the year-end but we stress that the cross will stay in the 1.05-1.10 range in coming months.”
“We still think it is unlikely that we will reach new cycle lows and forecast the cross at 1.06 in 1-3M, within a broader trading range of 1.05-1.10. Further out, we continue to look for an uptick in the cross. While higher US rates should weigh on EUR/USD next year, all else being equal, we stress that the cross should be less exposed to this as the sensitivity to monetary policy is fading due to stretched positioning and as our longer-term valuation models suggest that fundamentals increasingly drag in the other direction.”
"Thus, we still see a strong euro recovery and the outlook for fading rate divergence fuelling a move higher in EUR/USD to 1.10 in 6M and 1.16 in 12M.”
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