Does forex market believe in rate hike story anymore?

Post 4 events, forex markets have spoken

Congratulations! You survived ECB, FOMC, RBNZ and BOJ. The markets have spoken. If there is any shred of credibility in the ‘4-rate-hikes-this-year-becomes-2’ Federal Reserve, that shred has gotten smaller because you see, the markets continue to sell off the USD.

FX majors overlay from 15 Dec FOMC

FX majors overlay from 15 Dec FOMC

Except for GBP, all forex majors in this chart are now stronger than USD since December FOMC. That turning point or peak USD appears to be late January and the point where majors crossed into positive territory was late-February.

This is starkly different outcome from end-December when the USD rallied (ex JPY) when the market believed that there would be further rate hikes this year.

From another angle, this was a chart I posted back in March ‘About that interest rate hike and 3 DXY levels you must watch‘ explaining how to read rate hike expectations via the Dollar Index.

DXY 2014- present

Chart posted in March

An update shows that this FOMC week, the Dollar Index continues moving towards ‘peak disappointment’.

Two DXY levels you must watch

Two DXY levels you must watch


What does ‘peak rate hike diasppointment’ mean?

I need to clarify this term. Peak rate hike disappointment does not mean no more rate hikes. As long as Yellen and co retains bragging rights, the market remains in two states:

  • Believe in more hikes but at slow pace (move towards DXY 100)
  • Doesn’t really believe but cannot discount totally (moves towards 92.6 technical support)

There are other states too:

  • Really convinced and shown prove of further hikes (DXY beyond 100; never happened post-Dec which is a huge telltale)
  • Totally does not believe or receive confirmation of no more hikes i.e. rate cut instead (DXY falls below 92)

At this moment, the narrative on main stream media wants us to believe that a rate hike will come in June. Real or not, my personal belief is they are doing the ‘boiling frog’ sequence by moving goal posts in small incremental but not alarming level. No savvy analyst will come out to call the lie because this would be end of career move. But it is likely the Fed will keep postponing.

That day we see Yellen mouth ‘more hikes’ but DXY moves below 92 would be the day her credibility bank goes bankrupt.


Titbit: another bad month-end close

Recall this I wrote in March

there is another level to look for tomorrow which is the last day of March. 94.81 is the worst month end close of DXY. The index is perched on this level and tiny level as it is, there will be like-minded people who believe like me it’s huge significance.

DXY worst end of month closing level

DXY worst end of month closing level

Today is last trading session of April. Unless a miracle pops up in the last 20 hours, worst worsened.


Worst month close since 2015

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2 thoughts on “Does forex market believe in rate hike story anymore?”

  1. Ibrahim AlBehaisi says:

    Thank you Mr Soh like your article
    It is an eye opener appreciate them

    1. Soh Tiong Hum says:

      Ibrahim my pleasure.

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