The U.S. Dollar is trading in tight ranges ahead of the Federal Reserve’s monetary policy decision later at 2 PM.
Overview
Today’s move is expected to be of 75 additional basis points, which would bring the Federal Funds Rate to 2.5%. Much of the anticipation for today is driven by how Fed Chairman Jerome Powell will review the economy and if he still feels it can withstand higher borrowing costs in upcoming months.He is getting some help in the form of positive data and developments with June Durable Goods Orders jumping by 1.9% when a contraction of (-0.4%) was expected. We have been asked if we believe that the Fed will make a 100bps increment, but we feel they will stay away from displaying the aggressive pace shown by the Bank of Canada when it met two weeks ago.There is also a developing story with regards to mending the relationship with China as President Joe Biden and China’s President Xi Jinping engage in talks about growing tension over Taiwan and the need to cooperate more to reduce global inflation. The White House is said to be considering lifting some tariffs on imports.For now, it looks like data is helping make the argument for continued hikes with Capital Goods Orders and Inventories revealing more expansion than foreseen. We think the buck could lose ground at first based on a perceived lack of hawkishness in the afternoon but could turn up more expensive tomorrow as other trading sessions establish the fact that dollar debt pays a higher interest. Expect volatility and swings.
What to Watch Today…
- No major economic events are scheduled for today
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EUR
The Euro is awaiting to test its resilience as the Fed meets today to determine another hike and discuss future ones. With the energy crisis only making for everyone to adjust and plan ahead, the shared currency is waiting for any changes that may come in the conflict Russia started with Ukraine. A recent report tried to highlight that the efforts by Western allies to cut off Russia financially from the globalized economy are indeed working and that the country is facing a doomed future without the prospect of peace and good relations.Europe is desperate for some more clarity about the future of its energy imports, and it will have to cooperate with many parties to maintain a healthy level of energy use. Any indication that the war could see a turning point favoring Ukrainian interests will most certainly send the Euro sky-rocketing and it is a possibility to keep in mind as the rates flow to the weakest points in 20 years.
GBP
Sterling is also moving quietly ahead of the big risk event for today. Without much in terms of data, expect the flows of the Pound to be dictated by the reaction to the Fed’s press conference later. We feel that the economy on the other side of the pond may not be as strong as ours to handle the pace of hikes we will see here.
