Central Banks: Fed set to hike in December but at a very dovish way, BoJ trapped in a QE debate

With the theme being central banks, we offer the outlook for Fed rates, BoE, BoJ and the euro, with Jane Foley, Senior FX Strategist at Rabobank, along with Zak Mir, Technical Analyst at Zak’s Traders Café, and Bill Hubard, Chief Economist at Bullion Capital.

Fed rates: Going beyond December

Foley says that the Fed rate hike outlook has shifted from beyond a December rate hike, with more emphasis now being the on the trajectory for 2016. She adds that Yellen’s focus remains on the trajectory of the rate hike path.

Foley highlights that the dot-path of the Fed suggests it might be revised lower after December.

Fed could hike in December but in a very dovish way, says Foley. Adding to this, she highlights how Fed member Fischer talked about the appreciation of the USD and its negative impact on inflation and industries in US.

While the Fed is going to hike ahead, Foley notes that the inflation in US remains moderate.

She further adds that the more the Dollar rises, the less aggressive the Fed will be on raising rates.

BoE: Interest rate hike

While economists remain hawkish on a Bank of England rate hike, the money market thinks the other way. On the forecast for UK rates, Foley predicts a August 2016 rate hike, and comments that the sterling strength has already done a lot of monetary tightening in the UK.

The BoJ and easing debate

On the BoJ, Foley notes that the central bank remains upbeat despite the recession, with the bank view that the record levels of corporate profit will seep into higher wages for employees, which will increase spending and thus inflation. While the BoJ maintains this rhetoric, the Q3 japanese data speaks otherwise for policy action.