Whilst the international level of the US Dollar has historically been primarily a Treasury issue, this growing internationalisation since the Great Financial Crisis is new and may be wrong footing Fed watchers, whose reference points are still wholly orientated around domestic US economic data trends. Neil MacKinnon, our consultant economist, agreed that it was an interesting one and helpfully pointed out that the People’s Bank of China (PBOC) may now be more important, in terms of news flow, than the Fed.
He reiterated that the forthcoming plenum in Beijing on the 26th to the 29th October may in fact couch a pro-growth message out of the PBOC, earning Emerging Market currencies and risk assets some respite. This in turn may allow the relief rally in these categories that was seen after the Fed’s last failure to hike to continue into Q4. This international respite may in turn permit Yellen and the Fed to slip in their hike in December 2015 on a “one and it’s done basis”. This would enable them to avoid being accused of making a policy error by having declared that 2015 would see a hike.
This interesting internationalisation of the Fed’s mandate is genuinely new and leaves Fed watchers looking East rather than West for their next policy steer.