Fed: Next rate hike to come in June 2017 – RBC CM

Elsa Lignos, Senior Currency Strategist at RBC Capital Markets, suggests that one of the main things to watch in this week’s FOMC will be the language on global developments.

Key Quotes

“Back in June, the committee was relatively sanguine about the global backdrop, stating that it continued to “closely monitor” events abroad. Post-referendum Fed speeches played up the increased “uncertainty” but more recently the ECB (closer to the source of uncertainty) has noted the “resilience” of financial markets and even euro area PMI data show limited signs of a fall-out.

Our US economists have shifted their call for the next Fed rate hike to June 2017 and inflation is still subdued, allowing the Fed room to be patient; but the forward curve is not fully pricing a hike until Q3 2017 and trade-weighted USD is flat over the last two months (down ~4% from the Jan highs). With data set to show a growth and inflation slowdown in the euro area, it could be time for EUR/USD to surprise by testing the bottom of its 6m range.”