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US Fed to revise interest rate path to one hike in 2019 and none in 2020

Publication Date: 17 Jan 2019 - By ReachX Team By ReachX Team
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FX & Rates Environmental, Social & Governance FX Multi Asset USA

In the wake of recent dovish communications from the US Federal Reserve, a City economist says there may only be one interest rate hike from US central bank in 2019, and none in 2020.

In a note to clients, Andreas Johnson, US economist at Nordic Bank SEB, said his team has revised forecasted American rate hikes and expects the EUR/USD forex cross to be 1.18 at the end of 2019.

“We are revising our forecast and now expect the Fed to only hike its key rate once during 2019 (in June). We have also removed the hike we previously predicted during 2020. The Fed’s communication has turned more dovish in 2019 and we expect the central bank to pause hikes.”

However, incoming US economic data supports additional tightening and Johnson predicts a hike at the June meeting before clearer signs of weakness in H2 2019 force the Fed to the sidelines.

“If economic activity decelerates more sharply than expected, the Fed might be forced to start cutting the policy rate in 2020. Following the revised Fed outlook, we now expect the EUR/USD to move sideways around 1.15 until mid-2019 before the currency pair begins moving higher.”

Johnson's team at SEB forecasts 1.18 by the end of 2019 and 1.26 by the end of 2020. The 10-year yield will trade in the 2.75% to 3.00% area in H1 2019. “Assuming the Fed hikes to 2.75%, we expect the 10-year yield to trade 0-25bps below the Fed funds rate by the end of 2019,” Johnson concluded.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

ReachX Team

 

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