USD: North Korea & Fed both ‘boy who cried wolf’ situations for markets? - ING

Despite a US data-led recovery this week, Viraj Patel, Foreign Exchange Strategist at ING suggests that they continue to view the broader USD outlook as being negative heading into next week's FOMC meeting.

Key Quotes

“The ongoing geopolitical overhang, and news of another North Korean missile test overnight, supports our more cautious dollar view; while the threat of an escalation may be turning into a ‘boy who cried wolf’ situation for markets, global policymakers are wary of the fact that the appearance of the wolf in this case may cause a serious dislocation in financial markets. A UN meeting is scheduled for 1500 ET today.”

“As for the Sep FOMC meeting itself, it will be interesting to see how Chair Yellen manages the two emerging camps within the committee – that is those members looking for a continuation in the current normalisation cycle and those looking for an extended (or even permanent) pause in hikes until there is greater confidence in the US inflation and broader economic outlook. We note that it’s typically hard for the dollar to rally on Fed meetings and this time may not be any different; any hawkish Fed cries could again fall on deaf ears given the bleaker US economic fundamentals going into the meeting (giving rise to a second ‘boy who cried wolf’ situation). Fading the USD rally may be a more prudent tactic ahead of the Fed.”