The market is taking down the odds of an extra FOMC rate hike this year and a higher terminal top.
The May Fed peak is down to 4.93% from 5.03% at the highs this week. Until Timiraos’ latest, the market was flirting with pricing in another Fed hike in Q1 but his nod to 50 bps in December has changed the thinking.
The note also comes just hours before the FOMC blackout period ahead of the November 2 decision.
The shift in market thinking is also evident in the front end of the US bond market. US 2s are down 6.7 bps on the day to 4.54% from a high of 4.64%.
With that, the US dollar continues to slide across the board. The euro has now turned higher, up 15 pips on the day to 0.9801. A Bank of America survey this week emphasized that USD longs are the most crowded trade in the world right now so it’s not a surprise to see big moves in retracements.