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Editor's Note: The chart and excerpt below are from today's Early Look which was written by our U.S. Macro Analyst Christian Drake. Click here if you're interested in getting a step ahead of consensus with our morning market note.

CHART OF THE DAY | Case Study: U.S. Dollar Index - z z Dollar CoD

A few other pre-FOMC considerations:

  • $USD:  As can be seen in the Chart of the Day, in prior cycles, most of the gains in the dollar have come in anticipation of policy tightening with the currency typically weakening once rates hikes actually commence. #Frontrunning
  • Fed Fund Futures:  As has been well highlighted, Fed Fund futures are only pricing in a 23% chance of a rate hike as of this morning and, given the Feds unprecedented predilection for managing market expectations, an unanticipated rate hike could propagate unwanted volatility.  The hawkish rejoinder is that the fed fund futures market can be thin and the front end of the curve (3M-2Y treasuries) is positioning for a policy shift.
  • Lags:   The outside lag on policy – the Feds view of how long it takes enacted policy to flow through the real economy – is something like 6-18 months. Broadly, this (loosely) argues for pre-emptive policy followed by a lot of wait-and-see.