As we all know, the US economy is performing well to all accounts. And as such, the FOMC are going to be considering raising interest rates in the not-too-distant future. Right now, as I type, the futures market for the Federal funds rate sees the first hike at some date between Early June and September.

So that puts us roughly 9 months from the first rate hike from the Fed. The 1st in many, many years. Many junior traders and investment managers who started their career in 2007, have never seen a Fed hike - and these are the people who will now be managing directors or Portfolio managers at sizeable hedge funds. While looking at historical charts of how various assets respond to hikes is one thing, actually trading it is another. Typically a Fixed income manager will look to buy USD-denominated, short duration bonds during a hiking cycle, so as to protect themselves from the MTM impact of higher rates.

In FX, typically higher US rates act in multiple ways to benefit the USD;
  1. Higher interest rates serve to decrease (in theory) inflation, and as such, real interest rates rise leading to a high USD