US rates have further to rise - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that while the market has warmed to the idea of a Fed hiking rates next week, it is still reluctant to price in even two further this year (after March). 

Key Quotes

“However, on some measures, the Fed is already at its mandate for full employment and 2% inflation.  FOMC members’ forecasts next week are likely to reveal risk of more hikes this year, as many as one per quarter.”

“In the tumultuous start to the Trump presidency, the USD has at times appeared to be undermined by controversy and policy uncertainty.  However, the FX and rates market appears to have paid less attention to negative news related to the administration in the last week.  This includes unsubstantiated allegations made by Trump against former President Obama over wire-taps, Republican infighting over the policy to replace the Affordable Healthcare Act, difficulty finding staff for high-level posts at the Treasury, and another attempt at a travel ban meeting renewed resistance from two states so far.”

“It appears that stronger momentum in the US economy that may, or may not, be related to hopes of fiscal stimulus and tax reform is now getting more attention.”

“There is enormous political uncertainty in the USA with contentious policy issues including a possible border tax, tougher bilateral trade policy, debt ceiling reinstatement next week, and North Korean tensions.  This may up-end confidence in the USA and/or global economy at some point.  However, the market is being forced to consider a more immediate risk that the US growth and inflation trends are stronger than previously thought.”