USD strength could undermine Fed’s rate hike? – Scotiabank

FXStreet (Edinburgh) - In the view of Camilla Sutton, Chief FX Strategist at Scotiabank, the current high levels of the greenback could push back expectations for a rate hike by the Fed.

Key Quotes

“The USD is softer today as market participants consider the risk that the recent USD strength slows the pace of interest rate hikes”.

“In the most recent minutes the USD strength was noted; with the core focus that it would put temporary downward pressure on inflation”.

“The recent strength in the USD is noteworthy and particularly topical as the USD DXY index was driven to 100 in the Asian session”.

“In addition, since the last Fed meeting, on January 28th, the USD has gained 6% against EUR, 1% against CAD and GBP and 3% against JPY and AUD. This is significant appreciation and is likely to be a core discussion piece for the Fed”.

“Accordingly, though we do not think USD strength replaces interest rate hikes, we do think financial market developments have the potential to slow the pace of rate hikes”.