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Dollar’s path hinges on Fed rate hike bets
Forex
12/07/2018

Dollar’s path hinges on Fed rate hike bets

The greenback is mixed on Friday as traders take a cautious tone ahead of the key US NFP employment report. The release could bring back short-term volatility in the dollar pairs but the broader picture will

The greenback is mixed on Friday as traders take a cautious tone ahead of the key US NFP employment report. The release could bring back short-term volatility in the dollar pairs but the broader picture will still depend on the Federal Reserve rate hike bet.

The US-China trade war, prospects of slower global growth, and a more cautious tone by the Fed make investors worry about the potential pause in rate hikes at some point in 2019. The base-case scenario now implies that after a hike in December, the central bank will stop monetary policy normalization should the effect from fiscal stimulus start to ebb, and the trade war consequences affect the economy.

However, as long as the US GDP and CPI growth rate stays robust, the Fed will unlikely send the markets a clear ‘dovish’ signal. In this context, there is no eminent threat to the dollar’s bullish trend in the short- to medium term. However, should the yield curve stay inverted, and the 10-year Treasury yields continue to decline, recession worries could come to the fore. In this case, the greenback will have to turn to defensive.

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