Back in December, after FED hiked rates by 25 basis points, Market was pricing two more hikes in 2016, while FED’s dot-plot was predicting four. Since then lot has happened. As market faced heavy turmoil in January and February, market started pricing no hike and chance of a possible rate cut. With Market calm reaching in March, FED hikes are again back in focus.

Last night at monetary policy announcement it was evident that FED has scaled back expectations. Median estimate suggest there is likelihood of two hikes in 2016.

Let’s look, how market is pricing hikes ahead over the next few meetings –

• April, 2016 meeting – Market is attaching 100% probability that rates will remain at 0.25-0.5%
   
• June, 2016 meeting – Market is attaching 71% probability that rates will remain at 0.25-0.5% and 29% probability that rates will be at 0.5-0.75%
   
• July, 2016 meeting - Market is attaching 64% probability that rates will remain at 0.25-0.5%, 34% probability that rates will be at 0.5-0.75% and only 2% probability that rates will be at 0.75-1%.

• September, 2016 meeting - Market is attaching 53% probability that rates will remain at 0.25-0.5%, 40% probability that rates will be at 0.5-0.75%, 6% probability that the rates will be at 0.75-1% and only 7% probability that the rates will be at 1-1.25%.

So, as of now, market is predicting only rate hike this year and in December.

However, we strongly believe, with equities rallying and growth being stable FED may hike in June, against market expectations of November.

Dollar index is down more than 1%, trading at 94.7.