The USD to Remain Bullish, With the FED to Keep Up Pace of Rate Hikes
The FED is still keeping the pace of rate hikes, so we are remaining bullish on the USD, particularly against the JPY
The risk sentiment improved in financial markets for about a month until the middle of August, as the US fell into a contraction that scared central bankers, meaning that they would slow down with rate hikes. But, they are picking up the pace again which has hurt the sentiment, sending stock markets lower and economists/analysts are calling for more hikes, although they’re not stopping inflation.
Standard Chartered was out last week with a note forecasting significantly more hiking from the FED. “We see the FOMC moving by 75bps at the September meeting (previously 50bps) and 50bps (previously flat) at the November meeting and then holding through 2023,” they write.
Shifting forecasts ahead of many economic reports until then is a bit of a risk, but they say it would take a significant downturn in the data to put the forecast in jeopardy. “We think US labour data would have to slow dramatically to deter a 75bs policy rate hike, requiring surprises well below our lowish 0.3% m/m expectation for average hourly earnings and 275,000 nonfarm payroll growth,” Stan Chart writes. The market has shifted pricing following Powell’s Jackson Hole speech. The odds of a 75 bps hike are up to 75% and the terminal top is now 3.95% in March 2023.
USD/JPY H4 Chart – The Bullish Trend Has Picked Up More Speed
Moving averages are unable to catch up with the price
As a result, we are keeping a bullish bias for the USD and will keep buying the retreats lower, most likely against the JPY but also against other assets. This pair has been bullish for a long time and the upside has picked up speed in recent weeks, with the Bank of Japan not thinking about moving interest rates.
Yesterday a Wall Street Journal leak confirmed a 75 bps hike later this week and odds for such a hike increased to 82%. That came after the WSJ’s Nic Timiraos wrote:
“The Federal Reserve appears to be on a path to raise interest rates by another 0.75 percentage point this month in the wake of Chairman Jerome Powell’s public pledge to reduce inflation even if it increases unemployment.”
Leaking a previous decision to temper volatility was a bit of a deal with the devil because now every word from Timiraos is seen as a leak. The story cites public comments and is based on the idea that they’ve done little to push back against 75 bps.
USD/JPY Live Chart
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