MNI: MNI ANALYSIS: WHICH MARKET IS PRICING FED.......>

MNI: MNI ANALYSIS: WHICH MARKET IS PRICING FED POLICY CORRECTLY?

- Since November, a risk off tone, some disappointing US housing data and wider

concerns about a slowing global economy have led to markets re-evaluating Fed

policy. The front-end of US curves are now judging the next move for the Fed to

be a cut rather than a hike. However, there appears to be a divergence between

how macro markets have priced in this change in Fed expectations, with the

biggest divergence being between FX and fixed income markets.

- 5y govvies, 10y govvies and 2y swap spreads would all suggest that the DXY

index should be trading around 93 (current price 95.4) based on the relationship

over the past year.

- We have also compared DXY to a synthetic spread of sixth generic money market

futures and we note that the recent relationship suggests that DXY should be

trading even lower, around 91.

- For full analysis piece contact sales@marketnews.com