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Rate Hike Priced in USD despite Plosser’s Remarks

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Rate Hike Priced in USD despite Plosser’s Remarks

Federal Reserve Chair Janet Yellen made no mistake when she said a rate hike could materialize six months after the central bank ends its record bond buying program, according to Philadelphia Fed President Charles Plosser.

In an interview with CNBC, Plosser said the Fed has not changed its position on interest rates.

“It’s a little bit puzzling that the market would react the way it did,” Plosser said on CNBC today. “I don’t think the Fed changed its position… it tried to say very explicitly in its statement that we believe forward guidance or the expectations have not changed as far as we’re concerned.”

The markets have already priced a rate-hike into the equation, as evidenced by the dollar’s performance last week. As of Tuesday’s mid-day session, the greenback was trading in positive territory against a basket of its major competitors, edging up nearly 0.3 percent to 80.16.

The US dollar could edge higher Wednesday, as investors react to several market-moving events, headlined by durable goods and services PMI. According to a broad consensus, durable goods rose 1 percent in February, after declining sharply the previous two months. US services PMI, courtesy of Markit Group, is expected to rise 0.9 percentage points to 54.2 in March.

If positive, economic data could reinforce existing market sentiment supporting a rate hike as early as Q2 2015. If negative, data could compel some forex traders to lower their expectations. Although Wednesday’s data aren’t a large enough sample size to determine which way investors will go, they will provide key snapshots of the US economy over the past two months.

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