Fed rate decision: A hike gift-wrapped in dovish clothing
Take a look at our dedicated rate hike page for other scenarios
A dovish hike where the Federal Reserve lifts rates but lowers either dot plots, inflation or growth outlook or delivers a dovish message of very slow rate hike trajectory should be positive for the yield/carry trade.
This scenario will likely imply a slow grinding USD higher versus G3 currencies while high yielding, strong balance sheet emerging markets should perform.
The trading strategy should reflect this slow USD appreciation against G3 and look to take advantage of yield seeking portfolio flows.
- Buy USDJPY upside reverse knock-out two-month. Strike 110 vs 115 for 38 JPY pips.
- Sell USDINR 1-month at market, target 67.00.
USDJPY five-year chart
Editor's note: Please look at our dedicated rate-hike page for other scenarios that could result from the December meeting of the Federal Open Market Committee.
— Edited by Adam Courtenay
Non-independent investment research disclaimer applies. Read more