Rate hikes at risk, and the US dollar too
From Credit Agricole:
If you listen to the recent Fed speeches you would conclude that the FOMC members are not at all perturbed by the latest selloff in the global markets and remain rather constructive on the US outlook. The divergence between the Fed's desire to hike four times this year and more dovish market expectations has widened of late, however.
Indeed, persistent market uncertainty has encouraged investors to cut their rate hike bets as they fear a repeat of the experience from March and September 2015 when the combination of tighter US financial condition (FCI moving up) and negative economic surprises (ESI moving down) forced the Fed to sound more dovish. The start of the Fed's blackout period means that markets will focus on US data releases this week.
Key among these will be US inflation data [on Wednesday], with more evidence that core inflation accelerated further likely to support USD, especially against risk-correlated and commodity currencies.
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