Cable Beware - The US Fed Has Room To Be Hawkish

Cable, Beware, The, US Fed, Has Room, To Be, Hawkish, Fundamental Analysis, fx trader, forex

24 Aug 2016

Don’t be too moved by recent UK macro data prints and resultant GBP action that have together been vindicating Brexiteers. This week’s Jackson Hole symposium in the US will peak on Friday when headline act Janet Yellen takes to the stage. She won’t be biting the heads off live pigeons, but what she might do may not be that far off it!

Markets are currently pricing in a circa 15% chance of a September US rate hike and a still low 40% chance of a December one. Indeed, it seems as if markets are laughing at the hawks in terms of their refusal to believe that the US central bank will tighten policy this year. Well, that’s what they thought last year.

This is a dangerous situation to be in given that the US Dollar is currently not that strong, leaving plenty of room for it to strengthen on the back of an unexpectedly hawkish string of words from Yellen on Friday. It’s not just the US currency that drives Fed decision making either. It’s data on the global scale. What will the Fed make of a string of positive UK macro data prints that appear to be vindicating everyone who said ‘come on, it won’t be that bad’ about Brexit? Presumably this will dissuade the Bank of England from easing UK policy further.