With the USD having appreciated consistently for approximately eighteen months, there is massive long positioning in the market. Many traders will be looking to book profits at some point and the first rate increase maybe a prime opportunity to do so, in a classic “buy the rumour – sell the fact” style of trading behaviour. Accordingly, we advise against being long USD after the rate hike, and although the fundamental long-term bullish bias will remain intact, we speculate that selling USD on post rate hike profit-taking may be a worthwhile trade, depending of course on all the relevant factors at the time, such as the tone of the FOMC Statement.
USD Summary
- Core PCE for October, released November 25, showed y/y inflation remaining at 1.3% for the third consecutive month, and inflation for the month dropping to zero. This was the first zero rise in Core PCE m/m since January.
- Annualised Preliminary (2nd estimate) GDP for Q3, released November 24, printed at 2.1%, revised up from 1.5% in the Advance reading.
- FOMC Minutes relating to the October 27-28 meeting, released November 18, contained no major surprises but showed that most policymakers anticipated US economic conditions and outlook could well warrant a December rate hike.
- CPI for October, released November 17, came in close to expectations with headline inflation for the month rising 0.2%, as expected, and also 0.2% since 12 months prior, which was slightly above 0.1% expected. Core CPI was in line with expectations rising 0.2% for the month and 1.9% for the annual period. The failure of CPI to move lower suggests that the Fed have a green light to raise rates in December.
- Employment for November, released December 4, showed solid payroll growth once again at 211K, however wages aren’t building any steam at 0.2%. The unemployment rate held steady and low at 5.0%.
