Having surged back to 2018 highs in the last few days, dollar bears are hoping for a signal from Fed chair Powell today that a pause in its interest-rate hiking cycle is looming in 2019.
However, as Bloomberg’s David Finnerty warns, they shouldn’t get their hopes up, even if the Fed delivers.
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All eyes will be on Chairman Jerome Powell Wednesday and minutes of the November Fed meeting Thursday for validation of the idea that a slower path for growth, plunge in oil prices and rise in financial-market volatility mean the quarterly pace of rate hikes will be due for a pause in the foreseeable future.
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A pause is certainly priced in – while the Fed’s September dot plot signaled four more rate hikes through end 2019, investors have currently only discounted just over two over that period.
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Given that expectation, it’s questionable how much damage official confirmation of a pause would do to the greenback.
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What might be more important over the near-term is the direction of U.S. equities, which have been negatively correlated with the currency recently. Another slump on Wall Street could well spur dollar gains.
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The logic here is that carnage in equities — starting in the U.S. and spreading wide — spurs investors to the dollar as the ultimate haven because of its status as the world’s dominant reserve currency.
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Rather than the Fed, the upcoming meeting between Presidents Donald Trump and Xi Jinping may prove the pivotal event in coming days. Any failure to get at least a cease-fire in the U.S.-China trade war could see equity turmoil surging anew — in turn spurring haven demand for the dollar
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Bloomberg’s Dollar Spot Index is hovering ominously close to this year’s high. Don’t be surprised if its rally continues before year-end if equities can’t stabilize.
via RSS https://ift.tt/2E4fdNd Tyler Durden