Fx Thoughts : The Most Important FOMC Rate Decision of the 21st Century
The most important FOMC Rate Decision of the 21st century tomorrow night, 18 September 2015, 2 am Singapore time.
For the record, I think it will happen be it Sept or before the year ends because there is too much first world credibility at stake or risk themselves to be compared to China.
And a year ago, we were cheering the DXY at 84.28, US 10Y yields at 2.55% and the JPM EM Fx Index at 85.2.
12 SEPT 2014
A year later, we are not so happy with the DXY at 95 (+12.7%), US 10Y yields at 2.19% (approx. +3%), and the JPM EM Fx Index at 67.92 (-20.2%). Let’s throw in the S&P 500 -1.57% and Gold -10.06%.
A year later, there is not a single currency in the world that we know that is stronger than the mighty USD, unless you happen to be familiar with the Somali Shilling, Seychelles Rupee, Suriname Dollar, Gambian Dalasi, Costa Rica Colon, Dijboutian Franc, just to name the 14 countries (out of 156) which includes the HK Dollar – one of the last pegs standing.
It is not a pretty sight but what can we complain about because the world has become caught all on the same train, in the same boat or plane. And it is not something we are unused to because it has been like that for all these QE years except for 2013 where asset classes perform mostly in tandem, all thanks to the QE mentality and the rise of the too-big-to-fail-ETFs and funds. http://www.bloomberg.com/news/articles/2015-09-14/2015-is-shaping-up-to-be-another-year-where-everything-moves-in-tandem
Now we have market depth missing in every asset class including the most liquid market in the world – foreign exchange, the impossible to rig market where participants confess that they have problems accessing liquidity. http://www.bloomberg.com/news/articles/2015-09-13/depth-disappears-just-when-needed-in-5-3-trillion-a-day-market
This is just timely when we have FX traders now spilling the beans on their banks and the FX rigging that is taking place daily which is gratifying news to me ! because I have always thought it to be so. http://www.bloomberg.com/news/articles/2015-09-14/fired-currency-traders-won-t-leave-quietly-as-lawsuits-mount
The reason why the markets are swinging from pole to pole is because it cannot decide if this 0.25%, which some people have come to think of as a RATE HIKE CYCLE, is good or bad and it is obvious that the polls are split from this recent survey on the effect of the FOMC on the stock market which can be substituted for the effect on currencies, bonds and everything else because we know from above that all asset classes are moving in tandem !
30% of the market believes that 0.25% IS BANAL !! And there are other things to worry about.
But a 0.25% hike has led to nearly a 10% appreciation of the USD so far even as expectations for the future hikes continue to fall which is evident in the yield curve of today from 1 year ago and the chances of low rates forever is a foregone conclusion, that we shall never see 2007 levels for the rest of Ben Bernanke’s lifetime, or so he says.