Week in FX Americas – Battle of the Hawks vs Doves at Fed

  • Fed’s Dudley favors patience until labor and inflation pick up
  • Fed’s Kocherlakota cautions hiking rates too early
  • Fed’s Fisher says sooner rather than later. Spring 2015

One week after the FOMC that saw the end of bond-buying in the immediate horizon several Federal Reserve members had speeches where they expressed their personal opinion on the US economy. The main topic was of course rates. When will the US raise rates and by how much. All members agreed that there needs to be validation from economic fundamentals in particular employment and inflation before starting the rate hike cycle.

The hawk and dove camp both agreed on that, but their views diverged when asked about timing as some don’t see the recovery as sustainable and argued for patience, while others were pushing for a sooner rate hike. Forecasts published last week by the Fed are pointing to a later start of rate hikes, but at a faster pace after the initial benchmark raise is done.

The USD continues to gain versus major currencies. The momentum of the US economic recovery and the big question marks surrounding Japan and Europe have made the USD recover across the board. The EUR/USD has lost 3.43% in September due the to the challenges faced by the ECB in order to beat deflation. Japan reaped the benefits of QE last year but has struggled with a follow-up as reforms and corporate investment continue to lag. Next week is heavy on the European data front alongside a rate decision by the ECB and the mother of all indicators the US Non-Farm Payrolls on Friday.

Next Week For Americas:

The ECB is set to take the stage next week. German numbers continue to be solid when compared to the rest of Europe. The fact is that Germany is not immune economic woes and the sentiment polls have shown there is lack of confidence from business and consumers alike. Mario Draghi and company have the difficult task of convincing the market with words as there will be little change in actual actions.

Friday’s Non-farm payrolls in the US will help or hurt the case of a faster rate hike. Federal Reserve members have spent all week contradicting their forecasts in the media, which has left a lot of uncertainty on the timeline on when the Fed will hike rates. Currently the majority of analyst are envisioning a Q2 rate hike at the earliest. A good employment number might bring that a little close to the present.

Fore more market moving events visit the MarketPulse Economic Calendar

WEEK AHEAD

* EUR German Consumer Price Index
* EUR German Unemployment Change
* EUR Euro-Zone Consumer Price Index Estimate
* CAD Gross Domestic Product
* USD Consumer Confidence
* CNY Manufacturing PMI
* USD ISM Manufacturing
* EUR European Central Bank Rate Decision
* USD Change in Non-farm Payrolls
* USD ISM Non-Manufacturing Composite

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza