The reason rates will be hiked may not be so much about targeting the currency as containing the inflation feed through. The peso fell by 8.75% last week and is off 12.5% over the past three months. The changing political climate in the US is the primary driver, but the underlying macro fundamentals are not particularly attractive. Also, rising US interest rates, a broadly stronger dollar, pressure as a proxy hedge vehicle for emerging market exposure generally, and falling oil prices would be negatives in any event.
While by any reasonable measure, the peso’s losses are exaggerated, given the volatility a 50 bp rate hike is unlikely to make much of a difference to short-term speculators. There are other measures central bank can take, including tweaking its intervention rules. There does not seem to be an appetite to introduce dramatic measures, like capital controls. –
The day features no data releases, but we’ll hear from a few Fed speakers. FRB Dallas President Kaplan (2017 voter, centrist) will speak at an Economic Forum in Wichita Falls, TX at 12:30, FRB Richmond’s Lacker (non-voter, hawk) will discuss the national debt at 17:00, and FRB San Francisco’s Williams (non-voter, centrist) will be a panelist discussing “Leveraging Regional Strengths to Grow Chinese Trade and Investment” at 18:30