U.S. Fed likely to keep rates on hold in February, may hike in June and December

The U.S. Fed is expected to keep the fed funds target range at 0.50 percent to 0.75 percent in February, consistent with market pricing and consensus, noted Danske Bank in a research report. The upcoming meeting will not have an updated projection and thus the statement would be read carefully for any hints of when the Fed might hike next.

But the statements by FOMC are quite static and usually do not change considerably from meeting to meeting. Thus not much news is expected from the meeting. The central bank is still waiting for information on ‘Trumponomics’, stated Danske Bank.

The U.S. Fed is likely to hike its interest rate twice in 2017 – one in June and other in December – with risk tilted towards a third hike, according to Danske Bank. Because of the recent strong U.S. economic data, attention would be to looking for signs of whether the next hike might come as soon as March or May.

Markets have priced in two rate rises in 2017 that appears fair at the moment. The first full hike is anticipated for June. There is a 50 percent possibility that the Fed might hike its interest rate in May, according to market pricing.

“We expect 3-4 hikes next year, as the Fed has indicated clearly that it wants to offset Trump's more expansionary fiscal policy, although obviously much can still happen before 2018”, added Danske Bank.

Markets have anticipated an additional two hikes next year. Therefore there is still room for higher rates. The U.S. Fed has hinted at three rate rises in 2017 and 2018 during its meeting in December. More members of the FOMC have commented on the central bank’s reinvestment strategy in recent times and ‘quantitative tightening’ might become a market these soon if the Fed tightens monetary policy more rapidly than anticipated currently, said Danske Bank.

At 06:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 39.2165. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex