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The dollar and rate expectations

The chart shows the dollar index in green and the inverted Dec-15 Eurodollar contract. The latter is the market expectation of 3M money at the expiry of that contract in December. It’s inverted because the implied rate is 100 minus the price. So if it’s 99, then expectation is that rates will be 1% (100-1). Anyway, the point is just how tight the fortunes of the dollar have been tied up with interest rate expectations. And to this end, the Fed minutes last night took us right back to where we were before the March meeting, after which Yellen was perhaps a little too specific in terms of timing the first rate hike. Hopefully she has now learnt from her predecessor to be a little more obtuse.

DXY and Dec-15 ED

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