The US dollar has remained underpinned with little in the way of top tier data to drive market expectations, while US yields remain elevated relative to the recent past and it is clear that there is increased nervousness ahead of the FOMC meeting next week, notes Bank of Tokyo-Mitsubishi (BTMU).
“Despite the weaker than expected labour market report there remains grounds for some shift in communication on the outlook for monetary policy, especially given that QE tapering is close to an end. The DOTS used to show each FOMC member’s view on the timing of the first rate increase did show an increase in June to a median level of 1.13% for the end of 2015 and 2.50% for the end of 2016,” BTMU adds.
“While we do not expect any radical changes from the FOMC next week, there will be enough evidence to suggest that the FOMC believes considerable progress has been made and that rate increases are coming into focus,” BTMU projects.
“That will keep the current monetary policy divergence theme alive and ensure support for US yields and the dollar,” BTMU argues.