Fed Atlanta President Lockhart signals September hike

When Federal Reserve Bank of Atlanta President Lockhart comes out and says September could be an appropriate time to lift rates, markets pay attention. He is a voter on the central/dovish side of the Fed spectrum and he was pretty explicit in his comments: "I think there is a high bar right now to not acting". 

He notes that the addition of the word "some" (in the phrase "some further improvement" in the labour market) was "a qualifier that conveys to the public that we're getting closer"..."I don't think it would be a big policy error to wait somewhat longer... I'm not one to quibble over one meeting or so. But I do think we are close. The economy is in a state of readiness for beginning normalization". 

The reaction in FX markets pushed USD higher. EUR/USD tumbled 80pts to sub 1.09 (low 1.0883, spot 1.0890/95), USD/JPY popped up to 124.40 (spot 124.30). USD/CAD traded through 1.32 (high 1.3203, spot 1.3180). 

AUD is still the top G10 performer on the day following the RBA but it is back below 0.7400 having peaked at 0.7429. The first hike is expected in September though attention will quickly shift to the pace of tightening once the Fed gets going. 

"Right now the market is priced for a slow pace of tightening (Dec 16 Fed fund fut at 1.04%), there are upside risks", says RBC capital markets.