Fed to hold rates with 'some hawkish noises from Powell' expected to revive USD

Economic data out of the US remains fairly positive, even building on the strong base of 4.4% third quarter growth. Weekly jobless claims continue to bump around near all time lows, suggesting that lower levels of job creation are not feeding through to a higher unemployment rate.

However, all of this seems outweighed by international concern about policy chaos and institutional degradation, and the US dollar is now the worst performing G10 currency year to date - even worse than the yen. Attention this week will, of course, focus on the Fed's January meeting on Wednesday.

There will be no change in rates and some hawkish noises from Powell would probably support the dollar, which may have fallen too much, too fast, at least for the short term.

We expect Powell to emphasise that the US economy remains in a decent place, while indicating to markets that the FOMC is in no rush to cut rates again. Indeed, futures markets are now not fully pricing in the next rate reduction until as far out as the bank’s July meeting.