Some traders are now seeing a rate hike in US markets for later this year as optimistic, with an increase to interest rates entertained as a realistic goal for the middle of 2016. A cross section of market participants reveal a segment that believe a postponement to liftoff is best in the current environment, while others see the FOMC’s decision as a dangerous lack of confidence that could be costly. One member of the FOMC was even aligned on the same platform as Bank of England's Chief Economist Andrew Haldane, in that an actual cut to rates could be in the cards, though his was the only voice with this perspective. The hesitation on the part of Central Banks to move has increased the volatility present in markets, as patterns between instruments are more obscured than ever. The trends from the last few years are no longer able to be relied upon.
Currency markets still have high opinions of the ability of the Federal Reserve to take the correct path, and are seeing this timidness merely as deliberation before successfully navigating the rough economic seas with their eventual decision. The dollar, after experiencing a slight slide, has managed a healthy rally in recent days. This could be speculation or an attempt by traders to buy while markets fell after the FOMC decision, but this means a decent population of the market are now seeing a 2016 hike as too late. The potential for a rate hike following the FOMC’s next meeting in October is distinct, but also highlights the extreme amount of uncertainty and the momentum hinged upon this ambiguity that is currently present in the economy. Accordingly, a move into the US dollar could signal not renewed confidence, but rather the risk aversion found in the dollar versus other assets. Traders may be trying to take the best of the worst in order to stay afloat, rather than try to tame the volatility solo.
Traders Uncertain Amidst Market Cloudiness
Market Trends - 21/09/2015