Fed hiking cycles history


01 November, AtoZ Markets – Heading towards eventual US interest rate hike, Deutsche Bank has dug into Fed hiking cycles history and provided its findings and forward projected for the USD.

Although historically the US Dollar has underperformed in number of Fed tightening cycles, the opposite seems to happen during long rate hike cycles like in the early 1980s and late 1990s when the US Dollar did surge ahead, argues Deutsche Bank.

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However, a unique aspect of the currently anticipated USD cycle is that, even shortened, the Fed tightening cycle will contrast with the previous ones when the majority of G10 central banks were either hiking interest rates along with the Fed (like 1994) and/or their bond markets were in a good shape relative to the US (like 2004 – 2006), points Deutsche Bank.

Deutsche Bank, FED

“USD gains have been more front-loaded before this (eventual) Fed tightening than any past pre-Fed tightening period,” points out the major bank. This would imply decreased and slower gains ahead, Deutsche Bank adds, “with 10% USD TWI gains spread over the next couple of years.”

Deutsche Bank, Fed

Nevertheless, it is too early to quit on the US bulls. “The USD normally only peaks when the G10 ranking of USD rates are going down from the top half to the bottom half of the ranking table. At the moment US rates are very likely heading up to near the top of the G10 rates ranking table,” - a ranking which Deutsche Bank believes will likely persist for years to come.

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