2016.04.2602:34:00UTC+00Fed Hike Aftermath Series: Hike Odds Shift to September

Market participants have started taking hawkish members of FED quite seriously and with stock markets, commodities shrugging off early weakness along with Dollar losing ground, case for two hikes from FED this year is building up.

We, at FxWirePro have set our eyes for June, unless economic or financial market turmoil hits our expectations. Nevertheless we also expect, there is quite a strong case for April hike too.

But as of now, market seems to be much dovish, pricing next and this year’s only hike in September. Few weeks back it was pricing only hike somewhere in December or November.

Let’s look at the hike probabilities over next few meetings –

Current FED funds rate stands at 0.25-0.5%

• April, 2016 meeting – Market is attaching 98% probability that rates will remain at 0.25-0.5% and 2% probability that there would be 25 basis points hike.
   
• June, 2016 meeting – Market is attaching 79% probability that rates will remain at 0.25-0.5%, 21% probability that rates will be at 0.5-0.75% and 1% probability that rates will be at 0.75-1%.
   
• July, 2016 meeting - Market is attaching 64% probability that rates will remain at 0.25-0.5%, 31% probability that rates will be at 0.5-0.75% and 4% probability that rates will be at 0.75-1%

• September, 2016 meeting - Market is attaching 47% probability that rates will remain at 0.25-0.5%, 40% probability that rates will be at 0.5-0.75%, 12% probability that the rates will be at 0.75-1% and only 1% probability that the rates will be at 1-1.25%.

• November, 2016 meeting - Market is pricing 44% probability that rates will remain at 0.25-0.5%, 41% probability that rates will be at 0.5-0.75%, 13% probability that the rates will be at 0.75-1% and only 2% probability that the rates will be at 1-1.25%.

Compared to our last week’s calculations, probabilities have turned more hawkish in far meetings and dovish in near meetings.