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1 Apr 2015
US rates might remain pressured downwards, but rebound in Q4 15 – Rabobank
FXStreet (Barcelona) - Philip Marey, Senior US Strategist at Rabobank, explains the factors which might keep US rates pressured downwards for the next 6months, and further expects Fed to hike rates in Q4 15, which would lead rates to rebound.
Key Quotes
“Since the exchange rate is directly influenced by monetary policy, its impact on the economy will be a major factor in the Fed’s timing of the first rate hike. The recent appreciation is putting US exporters at a disadvantage as is evident in purchasing manager indices and corporate earnings."
“If the Fed moves too fast, a further appreciation of the dollar could undermine the recovery. The fact that the ECB is moving in the opposite direction with its QE is making this side-effect of the Fed’s move to the exit even worse for the US economy. Therefore, for now, we stick to our Q4 call for the first hike.”
“Meanwhile, the ECB’s expanded asset purchase program is likely to add to downward pressure on government bond yields.”
“These factors add to the undercurrents in the market for US treasuries….The falling budget deficit is leading to decreased net issuance, while there is increased demand of pension funds and banks for US treasuries because of the rising share of retirees and regulation. These undercurrents are exerting downward pressure on US treasury yields, independent of cyclical factors and monetary policies.”
“On balance, we expect downward pressures to continue to prevail in the next six months, before rates rebound as we approach the Fed’s first rate hike in the final quarter of the year.”
Key Quotes
“Since the exchange rate is directly influenced by monetary policy, its impact on the economy will be a major factor in the Fed’s timing of the first rate hike. The recent appreciation is putting US exporters at a disadvantage as is evident in purchasing manager indices and corporate earnings."
“If the Fed moves too fast, a further appreciation of the dollar could undermine the recovery. The fact that the ECB is moving in the opposite direction with its QE is making this side-effect of the Fed’s move to the exit even worse for the US economy. Therefore, for now, we stick to our Q4 call for the first hike.”
“Meanwhile, the ECB’s expanded asset purchase program is likely to add to downward pressure on government bond yields.”
“These factors add to the undercurrents in the market for US treasuries….The falling budget deficit is leading to decreased net issuance, while there is increased demand of pension funds and banks for US treasuries because of the rising share of retirees and regulation. These undercurrents are exerting downward pressure on US treasury yields, independent of cyclical factors and monetary policies.”
“On balance, we expect downward pressures to continue to prevail in the next six months, before rates rebound as we approach the Fed’s first rate hike in the final quarter of the year.”