USD: Gradual pace of Fed’s rate hikes not enough to derail EM FX gains – ING

In view of the analysts at ING, the very calm US data calendar this week suggests that Fed communications and hints at the shape of President Trump’s tax reform should be the key drivers of USD crosses.

Key Quotes

“On the former, Fed’s Mester reiterated other Fed member views overnight, stating that she is comfortable with increases in rates over time. However, as a gradual pace of rate hikes is already priced in by the market (with 75% probability of a June rate hike), much clearer hints at an earlier rate hikes  (March or May) is needed for a Fed’s driven USD rally.”

“For now, and coupled with the mix of solid US and EM data, the current environment remains conducive for EM FX. From a short-term perspective, TRY stands out for its high implied yields, sharply declining post domestic crisis volatility and very cheap valuation. USD/TRY to break below the 3.6000 level.”