Fed maneuver will spur US dollar rally: Currency trader
Washington ((Oct 29) The U.S. dollar strengthen Wednesday afternoon after the Fed released a statement that delayed a rate hike but seemed to indicate that a December move was on the table. And the greenback is likely to further strengthen from here, according to one expert currency trader.
The Fed statement is "very bullish dollar," said Boris Schlossberg of BK Asset Management.
Schlossberg believes that the statement indeed increased the chances of a Federal Reserve rate hike in December.
While the central bank maintained its ultralow target on the benchmark federal funds rate, it appeared to drop hints that it is still planning to hike rates in 2015, as many Fed officials have called for over the course of the year.
Many have pointed to the fact that the Fed removed from the statement its concerns about "global economic and financial developments." And in a tiny change that may speak volumes, the Fed altered its prior statement that it will assess progress on the employment and inflation fronts in order to determine "how long to maintain this target range." Now, the Fed will assess the same in order to determine "whether it will be appropriate to raise the target range at its next meeting."
"A Fed that is trying to keep December alive looks to have maximized the statement to the best of its ability and sent a slightly hawkish message," summed up George Goncalves, Nomura's head of U.S. rates strategy, in a Wednesday note to clients.
"The odds of a December move have gone up tremendously," Schlossberg said.
This even though, to the trader's mind, "the fundamentals just don't justify it. We don't have inflation and the economy is basically muddling on through."
That makes him think it will be a "one-and-done" rate hike more prompted by political pressures than economic reality, "so the dollar will rally but at a very steady pace. It's not going to be a runaway rally in the dollar."
Of course, a higher risk-free rate should be bullish for the U.S. dollar, as it increases the returns that investors receive in exchange for simply parking their money in the currency.