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Dollar Bulls on Ice as Bets for Fed Pause on Rate Hikes Gather Pace

Forex May 24, 2022 04:17PM ET
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© Reuters

By Yasin Ebrahim 

Investing.com -- The melt-up in dollar has come unstuck recently as the odds of the Federal Reserve putting its rate hike mission on ice later this year gather pace.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell 0.30% to 101.79

“When it comes to the US, the idea of a Fed pause in the summer is gaining a little traction,” ING said in a note.

Fed members including Chairman Jerome Powell recently laid out the red carpet for two 50 basis point rate hikes at the next two meetings that would provide the central bank with breathing room to reassess the threat of inflation becoming entrenched.

Atlanta Fed President Raphael Bostic was the latest Fed member to back the idea of a Fed ‘pause' later this year. 

“I have got a baseline view where for me I think a pause in September might make sense,” Bostic told reporters Monday following a speech to the Rotary Club of Atlanta.

The remarks arrived on the heels of the Kansas Fed President Esther George, a former arch-hawk, who on Monday “seemed to support the view that the Fed should re-assess the situation after 50bp hikes in both June and July,” ING said in its note.

The cooling expectations for aggressive Fed rate hikes has hurt 2-year Treasury yields, which are sensitive to Fed rate hikes, forcing the dollar to put the brakes on its advance.

While stability in the US rates markets “could start to see volatility levels temporarily edge a little lower,” ING was quick to warn that a  prolonged u-turn, or correction, in the greenback was unlikely.

“We favour stability over a sharp correction lower for the broad dollar trend - largely since the Fed has the largest cause of any to be tightening rates sharply,” ING said, noting that the Fed rate hike expectations could change following the central bank's June meeting.

“This could all change at the next FOMC meeting on 15 June if the Dot Plots were to show 3%+ rates for end-23. But that FOMC meeting is three weeks away.”

Dollar Bulls on Ice as Bets for Fed Pause on Rate Hikes Gather Pace
 

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Comments (6)
Prem Chhatpar
Prem Chhatpar May 24, 2022 8:50PM ET
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The Fed is supposed to review the economy at each FOMC meeting and not predict in advance about the rate hikes. If it’s the latter case, the entire team should go on a holiday after announcing the Rate hikes schedule
Drr Terry
Drr Terry May 24, 2022 8:12PM ET
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Funny how no one on Wall Street had a care in the world when the Fed was pumping triilions into the markets and making them rich.
Lionel Laurent
Lionel Laurent May 24, 2022 8:12PM ET
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Des salopes
Chris Ru
Chris Ru May 24, 2022 6:59PM ET
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Fed is a joke and the market is a game. Plenty more fall to come but the rallies will be fierce.
Meru Pet
Meru Pet May 24, 2022 6:59PM ET
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why is oil so high if we are entering into a recession? inflation? the rate hike didn't help much. what about.. increasing the production of what we need.... aka oil???
Casador Del Oso
Casador Del Oso May 24, 2022 6:39PM ET
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we're in trouble now!
Craig Garrett
Craig Garrett May 24, 2022 6:21PM ET
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they've only increased rates by 0.75%, and they have not even started quantitative tightening yet, but already people are calling for the Fed to reverse course?
Alan Rice
Alan Rice May 24, 2022 6:21PM ET
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"consider a pause in September" to allow Fed re-evaluation of anticipated economic destimulus for previous months to date.
TheEnd IsNigh
TheEnd IsNigh May 24, 2022 6:21PM ET
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Inflation isn't going to pause because the Fed would. Not will it make up for the crippling supply chain disruptions.
Meru Pet
Meru Pet May 24, 2022 6:21PM ET
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how does it help?
Darnell East
DariusMO May 24, 2022 6:02PM ET
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