The United States Dollar opens the morning mostly lower against G10 currencies ahead of today’s Federal Reserve decision.
Overview
The Bloomberg Dollar Spot Index dropped nearly a quarter of a percent as choppy trading took over markets around the world. The Fed will announce its policy decision at 2 PM today, and current bets place the chance of a 25-basis point hike at 85%.
Though unlikely that Jerome Powell will provide many clues about just how long the Fed’s tightening cycle will continue after today, red-hot inflation data out of the UK continues to show that central banks around the world are clearly not finished fighting against inflation. Hawkish comments from Christine Lagarde of the European Central Bank also add to this narrative.
With expectations now relatively stable for a 25-basis point hike, markets will likely be most impacted by any new projections from FOMC members on the terminal Fed funds rate for 2023 and 2024, as these will provide clues into the length of this tightening cycle. If the financial sector in the US can stand it, the Fed will likely turn its eyes back to entrenched inflation inside the U.S., as Powell discussed a couple of weeks ago. Nevertheless, the Fed finds itself in a precarious position, and Powell’s words will be watched closely.
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
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AUD ⇑
The Australian and New Zealand Dollars both posted notable gains against the Buck today, rising as much as 0.5% before settling down a bit to run a third of a percent higher than the close yesterday. Though the Reserve Bank of Australia chose to hold rates at their most recent meeting and Governor Lowe signaled a pause in their tightening cycle, any hint of dovishness from Jerome Powell could further boost the currency. Chinese economic recovery could continue to strengthen the Antipodean currencies as well because of the close trade ties between the three nations.
GBP ⇑
Pound Sterling is the morning’s big winner, as inflation data out of the UK released early this morning posted at 10.4% annually, a big upside surprise. This may force the hand of the Bank of England – as of yesterday, a hold from the BoE was more likely but markets are now fully pricing in a 25-basis point hike. Such a high inflation figure may, however, spell doom for Rishi Sunak’s fledgling government as it places his promise to cut inflation in half this calendar year in jeopardy.
