BUZZ-COMMENT-Risk of hawkish Fed surprise underpins USD – Reuters

Sentiment:
Mostly negative

  21-Sep-2021 11:18:08

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Sept 21 (Reuters) – Although risk aversion has abated for now, the continued safe-haven allure of the USD will limit it’s setbacks while markets remain cautious, as will fears of a hawkish surprise from the U.S. Federal Reserve on Wednesday.

Investors still expect the Fed to signal their intention to taper this week, but that it won’t start before the end of 2021, so the risk of a hawkish surprise and stronger USD is therefore tied to forward projections about interest rates from committee members – the dot plot.

Citi bank might well reflect the broader consensus here. It sees one Fed hike in 2022 and two in 2023, and suggests it would take the dots to show two hikes in 2022, or four or more in 2023, to generate a hawkish reaction, which Fed chair Jerome Powell would be sure to try to moderate in his subsequent speech.

However, while a hawkish surprise would be sure to reignite USD demand, its gains might be limited. The market isn’t short of U.S. dollars — as it was before the June Fed meeting — and still faces the risk of a USD negative U.S. PPI miss on Thursday.

Stock and FX risk gauges are off highs, but still reflect caution. (Full Story)

 

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(Richard Pace is a Reuters market analyst. The views expressed are his own)

(( Richard.Pace@thomsonreuters.com ))

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