Fed rate cut expectations weigh on Dollar as dovish Hassett front runner for chief position

Matthew Ryan, CFA Ebury

Rising expectations that the Federal Reserve will slash rates again at its next meeting in December has continued to weigh on the dollar so far this week, with the greenback on course to post its worst weekly performance since July.

US markets were closed due to the Thanksgiving holiday on Thursday, meaning that the taste left from Wednesday’s disappointing retail sales figures has continued to linger for a little longer.

The Fed won’t receive any further NFP prints between now and the December meeting (the October report has been cancelled due to the government shutdown), but it doesn’t look as though that will be enough to derail another rate cut, which is currently 80% priced in by futures. Reports that Trump ally Kevin Hassett is now the front-runner to be named the next chair of the FOMC has also induced a bit of selling pressure in the dollar.

Hassett is widely regarded as the most dovish candidate currently in the running to be the next central bank chief, having previously voiced a preference for a much lower fed funds rates.

The move in the dollar off the back of this news story has been relatively contained so far, but expect this topic to come into closer view as we get closer to the end of Powell’s term in May next year.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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