Wall Street's rate-hike panic is inflating the dollar — fade the fear with the Euro
A major Wall Street firm is loudly warning that the Federal Reserve will shock everyone by raising interest rates this week. Meanwhile, another major bank is arguing the exact opposite — they say rates will stay unchanged and the dollar will drop because the market is overreacting to fear.
Idea
The financial headlines are currently dominated by intense fear that the Fed will hike rates, which is propping up the dollar. However, TD Securities points out that the majority of market participants actually expect rates to stay unchanged. This means the current dollar strength is being driven by an outsized fear trade rather than the likely baseline reality. If the Fed does the expected thing and holds rates steady, the panic-driven dollar premium should deflate, creating a buying opportunity in major foreign currencies like the Euro and Pound.