"With the Fed set to hike again at the December meeting, we look at the impact a repricing of the rates curve would have on the broad USD.

Our estimates suggest that if the market prices in a pace of normalisation consistent with our economists' view (100bp by end-2018), the USD index would appreciate by about 5%

...and if the market prices in a pace similar to the FOMC's economic projection (150bp by end- 2018), the USD index would be higher by about 8%.

However, the actual amount of appreciation that can be expected under these scenarios is likely to be more contained than our estimates suggest because of the feedback loop between USD and Fed policy, where USD appreciation reduces the need for a higher policy rate. As such, because of the impact such an appreciation would have on the Fed's outlook, we believe that a pace of normalisation similar to the FOMC's expectations is very unlikely. Moreover, with these appreciations, the broad USD index would reach levels not seen since the early 2000s.

Based on the sensitivity of the underlying crosses to changes in US rates, we favour being short JPY, NOK, SEK, and EUR against USD, as our estimates suggest that they would be the crosses most affected by the repricing of the pace of policy normalisation".

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