22 November, AtoZForex.com, London – In an environment of already priced in expectations of Fed rate hike, Credit Agricole shared its weekly FX G10 highlights.
Although the October FOMC minutes made a solid case for a December US rate hike, USD lost ground. The counter-intuitive reaction signals that market expectations about the aggressiveness of the Fed tightening beyond the first interest increase have become an important driver.
Unless fundamentals will signal accelerating economic growth momentum, the Fed should remain cautious about the pace of tightening in an effort not to dampen investors’ expectations for growth and inflation.
Consider reading: Don’t be fooled by decline in USD
“We could see further unwinding of USD longs but doubt that investors will go cold turkey (due to Thanks Giving) on the USD,” Credit Agricole notes, advising that, “going into the December meeting we remain in favor of buying USD dips, in particular against JPY and NOK.”
Turning to commodity currencies, capped global growth expectations leave commodity prices under pressure. “We are still bearish on commodity currencies like NOK, especially when considering that Norges Bank can ease further,” Credit Agricole added.
Weekly FX G10 highlights
EUR – As the ECB does not seem to be affected by improving growth prospects for now, next week’s PMI prints are unlikely have any meaningful impact, Credit Agricole notes.
GBP – Limited expectations of an interest rate increase should keep GBP upside capped. Even better than expected GDP data might not revert such conditions.
USD –“Next week’s backward looking GDP will not change the firm rate expectations,” Credit Agricole notes. Thus USD could remain to be longed on dips.
JPY – Soft inflation data might support the dovish view that the BoJ will have to ease policy further in order to achieve its set inflation target.
XAU – Already priced in expectations of Fed rate hike could make gold subject to upside pressure.
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