This page has been archived and commenting is disabled.
Dollar Tumbles As Fed Rate Hike Suddenly Looking Very Uncertain To Goldman, Bank Of America
After China's shocking currency devaluation, which some more conspiratorially-minded observers have concluded was China's retaliation to the west for the IMF's recent snub that pushed back China's evaluation for inclusion into the SDR to some indefinite point in 2016, the only question on everyone's mind is whether the Fed will delay or outright cancel any imminent "data-dependent" rate hikes as a result of the implicit tightening of monetary conditions thanks to China, and the dramatic appreciation of the USD which would not have taken place without China.
And while we await the first Fed speaker to hit the public circuit since Monday's night's dramatic event, which is Goldman's NY Fed's Bill Dudley speaking in a few minutes, here is what two of the most influential banks have to say on the topic.
First, here is Goldman:
We expect that Fed officials would evaluate the recent news in a similar way. All else equal, the unexpected appreciation of the yuan implies downside risks to inflation and an additional tightening of financial conditions that may affect growth--beyond the effects from the sizable appreciation in the dollar before this week. There could be some potential offsets, such as a healthier Chinese growth outlook and/or lower US interest rates. But on balance, the PBOC action marginally lowers the odds of Fed liftoff in September, in our view, and December liftoff remains our call. The FOMC’s post-meeting statement already indicates that the committee will take into account “readings on financial and international developments,” so we do not think any additional language would be needed at this stage. Fed Chair Yellen’s press conference would be a more natural venue for discussing the dollar’s impact on financial conditions, if this remained a concern at the time of the September 16-17 meeting.
And here is Bank of America:
The timing of Fed liftoff has always been a relatively close call in our view — and with the devaluation of the Chinese yuan this morning, it just got a little closer. A stronger US dollar is both disinflationary and a drag on US growth. While the depreciation of the yuan increases the uncertainty around the upcoming FOMC meetings, at this point it does not lead us to fundamentally shift our expectations for liftoff in September. However, the effects of a stronger USD may well slow the subsequent pace of rate hikes even if they do not delay liftoff. Of course, Fed policy remains data dependent. We thus recommend paying close attention to upcoming speakers to see how they assess the risks to the Fed’s objectives and expected policy path from this regime shift in China.
A stronger dollar is also disinflationary, but Fed officials have been largely unconcerned by weak commodity and import prices to date. The smaller estimated impact on core inflation in the staff’s model — about a 0.1-0.3pp drop following a 10% appreciation — may help explain the Fed’s reaction. We expect a larger and more persistent impact. In addition, Fed officials had cited stabilization of the dollar and energy prices as supporting their view that these disinflationary forces were “transitory.” Today’s market reaction may lead them to reconsider, as stocks, oil prices and inflation expectations all fell. The larger and more sustained these moves, the more likely the FOMC will react.
Today’s events won’t likely impact the incoming data before the September FOMC meeting. Instead, we think that the Fed will need to make a risk assessment: is the greater uncertainty after the Chinese yuan depreciation enough to warrant postponing liftoff? The FOMC also has the option to slow the pace of subsequent hikes, should downside risks be realized. Fed officials will need to weigh these risks against the realized cumulative improvement in the US labor market. The Fed call is now closer than before, but it may take a significant reaction by global markets for the FOMC to stay on hold in September.
Suddenly the case for a rate hike in 2015 looks very, very wobbly. Want proof? Look no further than the DXY which suddenly is not looking all that hot.
So did China get its revenge for the IMF snub? Check back in a few weeks when the CNY is down a further 10%.
And a thought experiment: if the PBOC will intervene to buy CNY after it devalues it just hours prior, will it now intervene to support a suddenly foundering USD?
»
- 23241 reads
- Printer-friendly version
- Send to friend
- advertisements -
DUH!
Popcorn! Where the fuck is my popcorn?
is a self-perpetuating negative feedback loop being created now between the yuan and the dollar?
China devalues yuan which boosts the dollar which then theoretically takes any bullshit ceremonial miniscule rate hike off the table since the dollar is now looking "stronger".
No rate hike causes the dollar to drop which erases the gap created by China's devaluation
China devalues again...will this process just keep repeating as more fiat currencies world-wide join in the race to the bottom to try and keep their currencies weak against the dollar and yuan?
Fuck it...just keep stackin' phyzz...it's popping this morning and the upcoming revaluation could add 25% to silver and gold overnight just for starters as this insanity does not appear to have any stopping point.
Just a month, heck a week, after everyone in the mainstream thought that that the dollar had no place to go but up and gold was headed to 500, we are seeing a pop in gold and the dollar is getting hit. Amazingly by another nation devaluing, and the mainstream seeing us partaking in a currency war, which is exactly what postponing a expected rate hike would be.
So the effects of a stronger Dollar will cause the Fed to not hike rates, which causes the Dollar to sell off before said non-existent rate hike which means the Fed will hike rates ????
I'm really confused now.
It's simple. The Chinese are saying a big Fuck You. 1) Sell all your US bonds at the high via Belgium. 2) Take the money and buy all the gold you can find at the bottom. 3) Dump all your US cash. 4) The next step, declair the Yuan will be backed against gold and not the US dollar.
is a self-perpetuating negative feedback loop being created now between the yuan and the dollar?
You are dead nuts on - this is the final chapter in the global fiat currencies collapse...the race to debase in the currency wars. I also agree with the "Fuck it...just keep stackin' phyzz..."
dup
"fiat currencies world-wide join in the race to the bottom"
Falsified GDP numbers can only hide 8 to 9 years of declining demand for so long. No matter how much CB's print and manipulate currencies.
Must wait till the first of the month for the gubernment to restock your EBT.
They must be such geniuses. Give them a raise
Whers's your wallet ?
Faster and cheaper if Old Yeller prints that money for her poodles.
so, rate hike in SEPT is now guaranteed? thanks GS.
No, but the default shortly afterwords is.
Must really irk the US to be pushed around like that by #2 and made fools of. Tough love .... .
Whew. Now we can blame the Chinese for not hiking rates in September. Gotta like them boyz sometimes.
I can't wait to hear Chuck Schumer say China is manipulating currencies again.
Schumer will say Iran is behind all that.
But contrary to this article - the dollar is getting weaker (not stronger) and gold is heading higher. And that is the reaction to no Fed hike.
yuh
i am thinking the same thing
THIS never happened
"and the dramatic appreciation of the USD which would not have taken place without China."
China got the FED by the balls? Just who is running this show.
Nooo!!!! Not teh goldz bitchez!!!!
Let's hear it for the damp-squib liftoff.
25bps will save the world and if it doesn't will it save the Fed?
same as it ever was....Just needed some Far (Left) East cover
haha
when did this happen?
"and the dramatic appreciation of the USD which would not have taken place without China."
Just now, read all about it.
Something that Edwards / Schiff / Pal / Napier / Wood have been saying for donkey's years...wake up and smell the coffee bitches...
Sure, we know reality lurks out there, just waiting for its chance to leap, but that is no reason to change our behavior. Delusion that tells us while bad things happen to everyone else, it could NEVER happen to me, should allow us to chase cars forever with NO fear of getting caught up in the wheels.
This is a battle between China and Germany. The U.S.is only a pawn. The weak Euro has helped Germany compete (or actually out-compete) China for selling exports. Thus the goal for China is to strengthen the Euro and weaken the yuan. Some people see this, as the DAX is getting clobbered.
SLAP A 20% TARIFF ON ALL GOD DAMN CHINESE GOODS!! Let them try to get the Iranians to buy there Shit! Tell the Corporate FUCKING WHORES to STFU! There was a poster on here that said once. Kill every last man women and child in Brussles. I'm starting to think his post wasn't so extreme. Tell the Corporate Whores that American Comes first and not there God Damn Plans for World Domination!
Wow that sounds easy.
Geniuses. We're surrounded by a buncha fuckin' geniuses.
FYI economic rules have been suspended for years now. Nothing will make sense because its all burning down to the ground to make way for the new system. The dollar is going with it sooner than you would think. So, own what people need to live andwill trade for....Good luck.
FYI economic rules have been suspended for years now. Nothing will make sense because its all burning down to the ground to make way for the new system. The dollar is going with it sooner than you would think. So, own what people need to live and will trade for....Good luck.
China is swirling down the toilet. Their desperation is palpable, that is why the shit is hitting the fan, not because of some "currency war". Europe isn't buying their crap and consumer spending here isn't going to save them. Good luck selling anywhere else. The only problem is that they'll drag the rest of the world into a depression with them.
You're not acounting for what the devaluation does for china internaly. It allows for them to self consume. That is actually a good thing for the chineese people... for a while anyway.
Do you think the sudden drop in USD happened naturally? Hell no. That's the US's retaliatory shot.
Wake me up at .72
feels like the russian vs usd episode 2. Chinese devalue yuan and USD won't let it happen.
By the time this is all said and done ... the dollar will be lining my birdcage.
To feed my bird, I'll be carrying a sign which reads, "Starving Billionaire - will work for food."
As the wolves lick blood off their paws.
If China does in fact have in excess of 10,000 tonnes gold, they Don't Need the 'IMF', or its 'SDR' - for anything. So in other words, it is just a question of timing and urgency.
This is nothing new. Moar currency debasement to shore up the trade vacuum to keep bleeding the USA. They don't care if their people live, so long as we die. Just like a bad marriage.
QE will be reinitiated by the end of the year?
The rates will go up in Sept, Dec, March 2016, June, Sept, Dec, NO WAIT REALLY AND TRULY, cross my heart and hope to die, It will be 2017 March, June ...... JOHNLGALT