Saxo Bank: Dollar can weaken amid US Fed's decision on key interest rate (exclusive)
Baku, Azerbaijan, April 27
By Anvar Mammadov - Trend:
The dollar can weaken amid the decision of the US Federal Reserve System (Fed) not to raise its key interest rate, John Hardy, head of FX Strategy / Saxo Bank, said.
"If the Fed is extremely neutral and doesn't in any way underline that it is leaning on hiking again soon as global market conditions have eased, then the USD could weaken," Hardy told Trend via e-mail April 27.
The Federal Open Market Committee will announce about changing of the base rate or maintaining it at the current record low level following another meeting April 27.
"But I suspect the dollar is more likely to rally on more balanced Fed language as the Fed may want to avoid overcommitting to a dovish outlook if conditions argue for a hike in July or September, for example," the expert said.
The expert said that supposedly, if the Fed proves more hawkish than expected, this could dampen risk appetite, particularly in emerging markets and a stronger USD response.
"I think the most likely scenario is a modest firming of the US dollar against the major currencies," the expert said. "Commodity prices might be mildly impacted by a bounce in the US dollar, but other drivers seem to be more important for commodity markets at present as the Fed outlook isn't likely to see a major overhaul any time soon."
"The very dovish guidance at the March FOMC meeting makes it likely that the Fed is on hold until at least the June meeting, and more likely the September meeting, in our view," the expert added.
The expert said that still, there is some risk that the Fed keeps its guidance "balanced" to avoid the market getting the impression that it wants to fuel further optimism in asset markets after the strong comeback in commodities and risky assets this year.
The Federal Open Market Committee raised the rate up to 0.25-0.5 percent per annum from the record low level of 0-0.25 percent in December 2015 following the meeting for the first time since June 29, 2006.
According to the US officials' forecast on further development of monetary policy, the rates can be increased by four times in the US in 2016. According to the Fed management's prevailing expectations, the rate can be increased up to 1.4 percent by late 2016.
But despite this, the rates remained at the same level during the Fed recent meeting in late January.
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