Federal Reserve

Don’t expect a Trump win to steer the Fed off course: Strategist

Definitely see a December Fed rate hike: FX strategist

While many expect the Federal Reserve to hold fire on raising interest rates this November, several market watchers expect a rate hike at its next meeting, due this December.

Indeed, this would still happen even if Donald Trump is elected as the 45th president of the United States, according to Saxo Bank's Head of FX Strategy, John Hardy.

"I think (a Trump presidency) actually does not really impinge on the Fed's decision making," he told CNBC on Wednesday.

As of late, the markets seem to have been pricing in a win by Democratic presidential candidate Hillary Clinton, however global stock indices and the U.S. dollar have come under pressure in recent sessions, as polls suggest Republican candidate Donald Trump is gaining ground.

"Let's say the dollar is on the defensive a bit — that actually helps the Fed to be able to hike rates because it has inflation implications and I think they would just lose all credibility if they skipped on that December rate hike," Hardy added.

"So I definitely see a December rate hike unless we're seeing a cataclysmic 1987-style correction in markets. I think we're moving towards that rate hike in December. The question is beyond December."

Traders work as Janet Yellen, chair of the U.S. Federal Reserve, is seen speaking on a television screen on the floor of the New York Stock Exchange
Michael Nagle | Bloomberg | Getty Images

Despite Hardy's comments, it's not to say that political events haven't influenced the central bank in previous cases.

In June, the Fed met just days before the U.K. voted in its referendum on whether to stay in the European Union or not. The Fed held off in June, saying ahead of the U.K. vote that Brexit "could have consequences in turn for the U.S. economic outlook."

"I would suspect that we'd see some sort of incredible spike in the (Mexican) peso in the event of a Trump victory, but then probably the whole situation's been overpriced because what does the reality of a Trump presidency look like. How realistic is it we move to the type of measures that Trump is promoting," Hardy said when looking at currency reaction.

"If we get a Clinton victory, I think the dollar's more broadly stronger because it's the sort of continuation trade and we're looking at a Fed that potentially has to be a bit more hawkish in the new year."

Back when the U.S. central bank raised rates in December 2015 — the first time since 2006 — several market watchers expected the Fed to raise rates some three times over the course of 2016. It has yet to hike even once this year.

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