The Fed entered the quiet period ahead of its 21 September meeting on
a dovish note with comments from Minneapolis Fed President Kashkari and
Fed Governor Brainard making a strong case for patience in raising
rates. However, our economics team views these comments as reflecting
the views of the more dovish members of the committee rather than part
of an effort to communicate the view of the majority or core members of
Our team continues to expect the Fed to deliver a rate hike at next week’s meeting. The
implied probably of a September hike is now back to 20% with the USD
softening in sympathy. However, with the market already short USD
according to our metrics and rates markets unlikely to reduce September
pricing much further, we think USD downside from here is likely to be limited ahead of the meeting.
We remain broadly bullish USD, continuing to run long derivatives structures vs. the AUD, JPY and EUR.