Will we get a phantom rate hike in June? – ING

By FXStreet Short-term US rates (and the USD) should be more reactive to near-term US data following the hawkish Fed shift, according to the ING team. ING notes that if the positive run of data continue, we may be faced with a phantom rate hike in June (data supports the case for tightening, but external factors keeps the Fed on hold). In this case, ING still see the USD outperforming versus currencies where there is a clear divergence in the fundamental/monetary outlook.

Key quotes

“Markets have not been data-dependent of late, FOMC felt they had to step in. The April minutes had a clear message: the Fed were concerned that markets were unduly underestimating the likelihood of a near-term rate hike and felt that assurances needed to be made over the future policy path. While recent Fedspeak has attempted to convey this message, the collective assessment reflected in the minutes has had the desired effect of boosting expectations (Fed Funds futures are pricing in a 30% chance of a Jun hike, while the Sep odds have ticked up to 60%). Yet, we think this week’s developments may have highlighted one of the flaws of the Fed’s data-dependent approach. We have noted that in recent …read more

Source:: FX Street