Dollar was sold off notably overnight, as stays pressured in Asian session, on talks that Fed might go into negative rates next year, despite objections by some policymakers. Fed fund futures are seeing a one-in-three chance of negative rates next year. Eurodollar options also cover rate at as low as -45bps by mid-2021. At the same time, two-year yield dropped to a record low below 0.14%.
Richmond Fed President Thomas Barkin told CNBC, “I think negative interest rates have been tried in other places and I haven’t seen anything personally that makes me think they are worth a try here.” He also said the US is probably right at the trough down the economic down turn already.
Philadelphia Fed President Patrick Harker said there would be a “high bar” for using negative interest rates as stimulus to the economic. Though, he also warned of re-opening the economy too quickly and “see a significant second wave of the virus”. There would be a “painful economic contraction of GDP in 2021 as shutdowns are reintroduced.”
