Credit Agricole CIB FX Strategy Research argues that a June rate hike remains quite likely at least because the rates markets are pricing in a 75% chance of a move and the Fed would be wary of creating potential market disruption by disappointing expectations.
However, CACIB notes that recent inflation data and fading fiscal stimulus prospects are keeping the rate curve very flat with the market pricing in a total of just over 2 hikes by the end of 2018.
“We suspect that this will eventually prove too conservative but for the moment the risk is that the June hike is followed by an extended pause until the Fed sees inflation readings pick up meaningfully,” CACIB adds.
Strategy-wise, CACIB argues that a flat yield curve should keep supporting a bias in favor of higher-yielding currencies against the USD.
Source: Credit Agricole CIB Research
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