With every improvement in investors’ sentiment and advance in equity markets, rate hike expectations are growing stronger. After last rate hike in December by FED of 25 basis points, market expectations have moved a lot from initial two hikes to no hike to 30% probability of rate cut to one in November. Latest FED dot plot is suggesting two hikes this year, which seems reasonable.

So, if FED is to maintain its stance of two rate hikes, 25 basis points each, and maintain the rate rise as gradual, then it would be fair to say there would be one hike in June and another in December. Our original expectations was of one or two hikes to be accompanied with decision over balance sheet reduction. But as of now balance sheet issue is more likely to be discussed next year, after rate increase to 1% range.

Market expectations, as measured from federal funds rate have advanced from November to September.

• As of now, market is pricing, 45% probability that rates will remain at current level of 0.25-0.5% range, 43% probability that rates will be higher by 25 basis points, 12% probability that rates will be higher by 50 basis points and 1% probability that rates will be higher by 75 basis points.

We expect expectations to advance further towards June.

However, this may not provide support to Dollar because latest leg of reflation is expected worldwide.

Dollar index is currently trading at95.14, down -3.5% YTD.