Further USD strength requires Fed Funds futures market to start pricing in a 50 bps hike in March – SocGen

In the opinion of Kit Juckes, Chief Global FX Strategist at Société Générale, the Dollar’s bounce is fading, unless the Fed starts talking tough.

EUR/USD is stuck

“Presidents’ Day has delivered a slow morning for markets, albeit one with a slight positive bias to Asian and European equities, that helps risk sentiment more broadly and in so doing, has prevented the Dollar from rising any further today.”

“In terms of EUR/USD, there are two reasons why the dollar’s bounce is getting stuck. The first is that 2023 growth forecasts are still converging on the back of European optimism. The second is that the move in relative EU-US rates that triggered the Dollar’s bounce at the start of this month, has petered out.”

“I suspect that further significant Dollar strength will require the Fed Funds futures market to start pricing in a 50 bps rate hike in March. After all, the market currently prices a very high probability of a 50 bps hike by the ECB in March.”