Talking Points:
- The US Dollar is having an atypical month of October, usually one of its best months of the year. The recent move lower by the DXY[1] Index could be the greenback recoupling with Fed rate expectations.
- A 25-bps hike is still priced-in for December 2018, but then no rate move is anticipated until at least June 2019.
- See the full DailyFX Webinar Calendar[2] for upcoming strategy sessions.
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After the US midterm elections at the start of November, we produced a note detailing some of the major charts and themes to watch into the end of the year[4]. Of note, my individual contribution was titled, "How Quickly Do Traders Spot Shifting Fed Narrative?" It seems that less than a month later, we have our answer.
Following speeches by Fed Vice Chair Richard Clarida on Tuesday, Fed Chair Jerome Powell on Wednesday, and the release of the November FOMC[5] meeting minutes on Thursday, it is now evident that traders have started to take notice of the chasm between the Federal Reserve's projected glide path for interest rates (as detailed by the dot plot in the September Summary of Economic Projections) and market pricing for rate hikes over the coming years.
On the surface level, some may say that Fed Chair Powell et al are backing down due to apparent public pressure from US President Donald Trump. But that would be a superficial assessment of the situation, ignoring the advance by the DXY Index in 2018 and the dramatic collapse of energy prices
