Fed looking to avoid a strong dollar - Nomura

Analysts at Nomura suggested that the Fed wants to keep anti-free-trade forces in check by avoiding strong dollar.

Key Quotes:

"Whether they are conscious of it or not, it is the role of FOMC members who are based in Washington to think about such things. It would hardly be surprising, given Mr Trump’s opposition to free trade, if they sought to stop the sort of dollar appreciation that could lend momentum to his campaign. Expectations of Fed rate hikes have been a key reason for the dollar’s strength in the past two years. As such, I would not be surprised if Washington-based FOMC members decided it was prudent to avoid a rate hike for the time being, given its potential to accelerate the dollar’s advance against other currencies.

Of course they cannot admit this publicly since it would be seen as interfering in political matters. The only senior Fed official to have commented on the dollar recently is Governor Lael Brainard, who has a reputation for speaking her mind. She opposes a rate hike for the reason that continued dollar strength could further depress prices at a time when inflation is already running below target levels. All in all, we can see that the Fed is made up of two competing forces: the central members who must take into account political considerations and the global economy, and the regional Fed presidents who are focused mainly on the domestic economy."