US: Left with a still data dependent Fed - RBS

Paul Robson, Research Analyst at RBS, suggests that we’re left with a still data dependent Fed and while the December meeting is “live”, but the FOMC says it needs more information.

Key Quotes

“This makes this week’s US core PCE deflator data for August important. The USD rallied significantly after CPI surprised topside last week. The consensus is for a tick up to 1.7%. A few more upticks and a solid September payroll report may give the Fed the confidence it needs to raise rates in December. The same is true with the passing of November’s US Presidential Election. So on balance, the Fed appears (slightly) more likely than not to hike this year.

But a hike is unlikely to be priced with a high degree of certainty for some time. Furthermore, the focus on low terminal rates and lowering of the “dots” should be comforting. Some major events are now out the way, with stable US policy, no mis-communication from the BoJ and a loosening of its CPI target. This all supports our global liquidity pump theme, where the global yield grab reasserts. We favour USD/INR and TRY/ZAR shorts. GBP could also increasingly be seen as a funder.”