Path dependent Fed meets a path constrained USD – Deutsche Bank

Alan Ruskin, Macro strategist at Deutsche Bank, suggests that it is reasonable to anticipate that the ‘risk-off’ response to Fed tightening expectations will be much more contained in the current circumstances, and will not stop the Fed from tightening in the summer, should the US data comply.

Key Quotes

“The feedback loop from Fed tightening expectations to the USD should not be strong enough to stop the Fed, in turn allowing for a modest USD rally into any rate hike.

Everything about the analysis below highlights the importance of a path dependent Fed and a path constrained USD. In current circumstances two 25bp rate hikes in 2016 are likely to be digestible for risk appetite, and consistent with moderate USD gains that do not up-end the Fed’s own tightening projections.”