Talking Points:
- The US Dollar surge over the past week has little to do with changes in market pricing of the Fed’s rate hike timeline.
- 25-bps hikes are being priced-in for September and December 2018, but then no rate move is anticipated until at least June 2019.
- See the full DailyFX Webinar Calendar[1] for upcoming strategy sessions.
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The US Dollar has been on a tear in August, with the DXY[3] Index having gained +2.24% month-to-date. If today was the last day of the month, the DXY would be posting its second best month of 2018, and its best August since 2008 (+5.67%). Similarly, the greenback is in the midst of its fifth consecutive month of gains in a row. Needless to say, it’s been a favorable trading environment for the US Dollar.
Earlier this year, particularly between March and June, there is a strong case to be made that the US Dollar’s gains were largely driven by the market’s changing perception of the Federal Reserve’s rate hike cycle. Even though the Fed, via its Summary of Economic Projections, had been outlining the path for three to four rate hikes in 2018, rates markets were only pricing in two hikes total this year back in March.
Fast forward to today, and two hikes have been realized, and two more are due in the coming months. But two more hikes through the end of the year have been priced in since the Fed’s June meeting: a week after the June meeting, markets were pricing in a
