Dollar bulls and rate bears in anticipation of Fed’s policy shift – Goldman Sachs

By FXStreet FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that historically, rate hike cycles are anticipated by markets, lead to slowly evolving economic shifts, and are well digested by markets.

Key Quotes

“The upcoming rate hike fits this template in some aspects, but there are elements of the
current landscape that may make this time different on several fronts.

… and headwinds may be greater for equities

Broadly speaking, we are bullish the USD and bearish US rates. US equities may be stuck somewhere in the middle, with growth low and level, rates rising and financial conditions tightening. Moreover, the current data flow has not been encouraging either. Even if the Fed is mindful of not overtightening financial conditions, it will be equally careful not to get too
far behind the curve. And if the data do pick up, it may then need to rein in growth expectations.

Data dependence and tactical risks will keep Fed in focus

The Fed does not expect to be on a predetermined course. Given this data dependence, amid atypical growth and inflation trajectories, and recent near-term uncertainties, we expect the market focus to shift quickly from the initial hike – which has been well flagged – to the subsequent path. The ultimate …read more

Source:: FX Street