Private DCN Private DCN - US Dollar

US rate hike expected but will we see a hawkish Yellen

By Michael Cooper December 14th, 2016

Yesterday was a light data day for the US dollar (USD). Import prices fell -0.3%, which was as expected given the recent bout of US dollar strength seen in the recent weeks, as the market prices in interest rate hikes for today and 2017.

Today is the day the market has been anticipating since the start of the third quarter of this year. It is highly anticipated that the Federal Reserve’s Federal Open Market Committee (FOMC) will raise interest rates to 0.75 percent. This would mark the 1st anniversary of the supposed “lift off” in interest rates last year. The move is fully priced into the market but it could be the FOMC statement and press conference that sets the tone for dollar price action until the end of the year. The FOMC are expected to give an update on the economic forecasts and FOMC Chairperson, Janet Yellen could use it as an opportunity to signpost the Federal Reserve’s economic plans and the path for interest rates moving into 2017/18. Given the sentiment and early indications of the effect of “Trumpflation” don’t be surprised if we see a change in tone from the FOMC with regards to their view on interest rates. A more “hawkish” FOMC could well be the outcome from this meeting.

In addition, we have some key economic data in the form of the retails sales and inflation at the factory gate.