Dips in USD to be limited – Danske Bank

Chief Analyst at Danske Bank Jakob Christensen sees pullbacks in the dollar to be shallow.

Key Quotes

“The USD fell broadly on Friday following the dismal labour market report and rightly so”.

“The report questions the improvements we have seen in US data early in Q2, which should weigh on the USD”.

“That being said, the market has moved far in pricing out Fed rate hikes with a 25bp rate hike in July priced in with around an 8% probability and a September hike with a 34% probability, according to our estimates”.

“The next full 25bp hike is only priced in by April 2017. The market is unlikely to significantly change its view on the Fed near term despite Janet Yellen talking today in Philadelphia”.

“However, we believe the market has more or less fully priced out the Fed for the coming months and see limited downside to the USD from relative interest rates”.