It’s Fed day! After talking about it for weeks, the day has arrived.
Overview
The U.S. dollar has held tight ranges this week ahead of this afternoon’s FOMC policy decision. It is highly unlikely that the Fed will change its current policy today, however, the decision will be accompanied by a new “dot plot.” We expect the dot plot to show that policymakers expect interest rate hikes to come in 2023 despite previous statements that the rate will stay next to zero through at least 2023. However, we should not discount the possibility of a dovish surprise in which the dot plots do not show a forward shift in expectations. A dovish surprise would all but certainly send the dollar into a tailspin.
Following the decision at 2 p.m., Fed Chairman will hold a press conference at 2:30 p.m.
At the time of writing, President Joe Biden is meeting face-to-face with Russian President Vladimir Putin as tensions between the two countries are high.
There are some second-tier data including Building Permits on this morning’s docket, but traders are likely to shrug off the results as all eyes on are the Fed today.
What to Watch Today…
- FOMC decision at 2 p.m.
CAD ⇑
The Canadian dollar was quiet overnight but there is plenty on today’s Canadian docket that could shake up the loonie. The consumer price index will be released at 8:30 a.m. and is expected to show that inflation ticked higher in May, following the trend in other developed countries.
Oil inventory data is expected out at 10:30 a.m. which could affect the commodity-based currency as well.
Bank of Canada Governor Tiff Macklem will speak before a Senate committee this afternoon but will likely be overshadowed by the U.S. Fed decision.
GBP ⇑
The British pound has popped higher in early trading, gaining as much as 0.3%. British inflation unexpectedly surged to its highest level since the summer of 2019. The 2.1% print for consumer prices is the first time inflation has surpassed the Bank of England’s target in two years. The uptick in price pressure could put pressure on the central bank to increase borrowing costs sooner rather than later, allowing the sterling to strengthen.
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