Week in FX Americas – Battle of the Hawks vs Doves at Fed

• Fed’s Dudley favors patience until labor and inflation pick up
• Fed’s Kocherlakota cautions hiking rates too early
• Fed’s Fisher says sooner rather than later. Spring 2015

One week after the FOMC that saw the end of bond-buying in the immediate horizon several Federal Reserve members had speeches where they expressed their personal opinion on the US economy. The main topic was of course rates. When will the US raise rates and by how much. All members agreed that there needs to be validation from economic fundamentals in particular employment and inflation before starting the rate hike cycle.

The hawk and dove camp both agreed on that, but their views diverged when asked about timing as some don’t see the recovery as sustainable and argued for patience, while others were pushing for a sooner rate hike. Forecasts published last week by the Fed are pointing to a later start of rate hikes, but at a faster pace after the initial benchmark raise is done.

The USD continues to gain versus major currencies. The momentum of the US economic recovery and the big question marks surrounding Japan and Europe have made the USD recover across the board. The EUR/USD has lost 3.43% in September due the to the challenges faced by the ECB in order to beat deflation. Japan reaped the benefits of QE last year but has struggled with a follow-up as reforms and corporate investment continue to lag. Next week is heavy on the European data front alongside a rate decision by the ECB and the mother of all indicators the US Non-Farm Payrolls on Friday.

Next Week For Americas:

The ECB is set to take the stage next week. German numbers continue to be solid when compared to the rest of Europe. The fact is that Germany is not immune economic woes and the sentiment polls have shown there is lack of confidence from business and consumers alike. Mario Draghi and company have the difficult task of convincing the market with words as there will be little change in actual actions.

Friday’s Non-farm payrolls in the US will help or hurt the case of a faster rate hike. Federal Reserve members have spent all week contradicting their forecasts in the media, which has left a lot of uncertainty on the timeline on when the Fed will hike rates. Currently the majority of analyst are envisioning a Q2 rate hike at the earliest. A good employment number might bring that a little close to the present.