Fed could still bow out of a December rate cut - Rabobank
"Although a hawkish Fed has recently supported the USD, it is our view that the Fed could still bow out of a December rate cut and this should limit the degree of short-covering for the greenback," argue Rabobank analysts.
Key quotes:
"The US tax reform that was outlined yesterday has been criticised by lacking detail in how it will be paid for. No doubt the measures now face a fierce debate before the plan is whittled down to its final form. For the USD, one area of specific interest involves how offshore earnings will be treated under any tax reform. Yesterday’s proposals appeared to reduce the incentive for US companies to keep overseas profits offshore and indicating that current offshore earnings will be taxed at a reduced rate in an effort to increase tax revenue. In principle this factor is USD supportive. That said, companies will not be forced to physically repatriate all these profits but only to pay a onetime cash payment to cover what they owe. This factor combined with the fact that US international companies already have significant USD denominated assets should prevent a huge surge in USD buying."
"Although a hawkish Fed has recently supported the USD, it is our view that the Fed could still bow out of a December rate cut and this should limit the degree of short-covering for the greenback. That said, the combination of the shakeout in USD shorts and EUR longs may keep EUR/USD below the 1.20 levels in the coming months."
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
