Super Hawkish Fed: Strategists Say USD Is The Only Choice

Wall Street strategists say the Federal Reserve's policy decision is once again at the hawkish end of expectations, which would leave the dollar as the only choice.

On Wednesday, the Federal Reserve raised interest rates for the third consecutive time by 75 basis points, as expected, raising the benchmark rate to a range of 3%-3.25%. Fed Chairman Jerome Powell emphasized that he continues to insist on controlling inflation and is adjusting policy to a level that is sufficient to limit economic growth.

The Fed's newly released dot plot shows that the Fed expects the benchmark interest rate to rise to 4.4% by the end of this year, 100 basis points higher than forecast.

1) David Croy, a strategist at ANZ Group, said:

After the volatility in the hours following the Fed's rate hike, the market clearly sided with the dollar. The dollar offers better arbitrage and safe-haven appeal as concerns about the downside of US and global growth gradually intensify.

He noted that

Over the past year or so, the dollar has appreciated in line with the Fed's policy expectations. This is unlikely to change as the Fed is now in a big lead. It is difficult for the market to stop the strength of the dollar at the moment".

2) Kit Juckes, chief foreign exchange strategist at Societe Generale, believes that

the Fed's aggressive tightening has pushed the dollar into the final stages of a strong rally. The road to dollar weakness is still tortuous, which requires a soft landing and a global economic recovery.

3) Masahiro Ichikawa, chief strategist at Sumitomo Mitsui DS Asset Management, believes

the Fed has been tougher than the market had expected. Although the 75 bps has been priced in, the dot plot shows the Fed's relatively tough stance and its economic forecasts seem to point to a deterioration in the economy.

I expect the stock market to remain unstable until we see signs of slowing inflation. US Treasury yields will remain high, which also means the dollar will remain firm against the yen.

4) Stephen Innes, managing partner at SPI Asset Management, said

Asian markets will continue to come under pressure as money continues to pull out of the region, underestimating the Fed's tightening policies and the recession that could follow.

Local stock and foreign exchange markets will now have to priced in longer-term restrictive policies and discard the idea that the Fed will quickly ease policy and resume growth.

What's your choice under though Fed rate hikes?

Share your thoughts in the comment section~