USD struggling to develop forward momentum - Westpac

USD struggling to develop forward momentum in the wake of an FOMC that signaled a faster pace of hikes, upgraded projections and raised their assessment to “solid” from “moderate”, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“The pledge that rates will remain below neutral “for some time” is obsolete and was dropped but could be read as a nod to tighter policy too: Brainard & Williams signaled recently that rates may move “modestly beyond neutral”.”

“The detail however is a lot less inspired. The upgrade to four 2018 hikes came from a single dot (markets were already pricing in a 50% chance); GDP forecasts for 2018 are more upbeat but beyond that are largely untouched and the 2020 median dot remained at 3.25-3.50%. All told the detail does not reveal a wholesale hawkish pivot.”

“The sheer level of US yield will limit USD downside but the prospect of fresh upside from even more hawkish Fed at this stage is vanishingly small – there’s next to no chance the Fed will signal five hikes in 2018 and they will not be compelled to raise expectations for 2019, if needed, until well into next year.”