Yesterday at the Brookings Institution, Fed Chair Powell confirmed the slowing of policy tightening. The 14 December hike has close to an 82% probability of 50bps as opposed to 18% for 75bps. However, the Fed Chair suggested a higher terminal rate than anticipated.
The 10-year real rate daily chart gapped down in response, showing a lower peak (LP) followed by a lower trough (LT). I.e. the real rate is trending down.
FXCM's USDOLLAR basket follows suit, defined by a lower peak (LP) then a lower trough (LT). In addition, the daily correlation coefficient between the two is at a strong 92%, suggesting a meaningful and positive relationship.
The decline in the dollar suggests a rising optimism that this tightening cycle is near its peak.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.